United States Court of Appeals,Second Circuit.
David RAJAMIN, Edith Gonzalez Larios, Jesus Valdez, Maurice Nunez, Elias Estrada, Irma Estrada, Theresa Doty, Robert Basel, Larry Myron Kegel, on behalf of themselves and a class of similarly situated individuals, Plaintiffs–Appellants, v. DEUTSCHE BANK NATIONAL TRUST COMPANY, a national banking association, individually and as Trustee of FFMLT Trust 2005–FF8; FFMLT Trust 2006–FF3; FFML Trust 2006–FF11; and FFMLT Trust 2006–FF13, New York common law trusts, Defendants–Appellees.*
Docket No. 13–1614.
Decided: June 30, 2014
Plaintiffs David Rajamin et al., who mortgaged their homes in 2005 or 2006, appeal from a judgment of the United States District Court for the Southern District of New York, Laura Taylor Swain, Judge, dismissing their claims against four trusts (the “Defendant Trusts”) to which their loans and mortgages were assigned in transactions involving the mortgagee bank, and against those trusts' trustee, defendant Deutsche Bank National Trust Company (“Deutsche Bank” or the “Trustee”). Plaintiffs sought, on behalf of themselves and others similarly situated (the alleged “Class Members”), monetary and equitable relief and a judgment declaring that defendants do not own plaintiffs' loans and mortgages, on the ground, inter alia, that parties to the assignment agreements failed to comply with certain terms of those agreements. No class action was certified. The district court, finding that plaintiffs were neither parties to nor third-party beneficiaries of the assignment agreements, and hence lacked standing to pursue these claims, granted defendants' motion to dismiss the complaint for failure to state a claim. On appeal, plaintiffs contend that they plausibly asserted standing and asserted plausible claims for relief. For the reasons that follow, we conclude that the facts alleged by plaintiffs do not give them standing to pursue the claims they asserted, and we affirm the judgment of dismissal.
We accept the factual allegations in plaintiffs' Third Amended Complaint (or “Complaint”)—which incorporated certain factual assertions, declarations, and attached exhibits submitted by defendants at earlier stages of this action—as true for purposes of reviewing the district court's dismissal for failure to state a claim on which relief can be granted, see, e.g., Rothstein v. UBS AG, 708 F.3d 82, 90 (2d Cir.2013), or for lack of standing, to the extent that the dismissal was based on the pleadings, see, e.g ., id.; Rent Stabilization Ass'n v. Dinkins, 5 F.3d 591, 594 (2d Cir.1993). The principal factual allegations were as follows.
A. The Third Amended Complaint
Plaintiffs are five individuals and two married couples who had homes in California and who, in 2005 or 2006, borrowed sums ranging from $240,000 to $1,008,000, totaling $3,776,000, from a bank called First Franklin, a division of National City Bank of Indiana (“First Franklin”). Each plaintiff executed a promissory note secured by a deed of trust on the home—“equivalent to a mortgage” under California law, Monterey S.P. Partnership v. W.L. Bangham, Inc., 49 Cal.3d 454, 461, 777 P.2d 623, 627 (1989)—in favor of First Franklin.
The notes signed by plaintiffs stated that plaintiffs “promise[d] to pay [the stated amounts of principal, plus interest] to the order of ” First Franklin (Third Amended Complaint ¶ 25 (emphasis added)). See generally U.C.C. §§ 3–104, 3–109 (2002) (a note “payable to order” is a type of negotiable instrument). The deeds of trust signed by plaintiffs, samples of which were attached to the Complaint, provided in part, in sections titled “UNIFORM COVENANTS,” that the parties agreed that
[t]he Note or a partial interest in the Note (together with this Security Instrument) can be sold one or more times without prior notice to Borrower. A sale might result in a change in the entity (known as the “Loan Servicer”) that collects Periodic Payments due under the Note and this Security Instrument․
(Third Amended Complaint Exhibit E ¶ 20; id. Exhibit G ¶ 20.)
Deutsche Bank is the trustee of the four Defendant Trusts, which were created under the laws of New York. (See Third Amended Complaint ¶¶ 12, 13.) The Defendant Trusts—whose names begin with “First Franklin Mortgage Loan Trust” or the initials “FFMLT”—maintain that they were created in connection with securitization transactions involving mortgage loans originated by First Franklin between January 1, 2004, and January 1, 2007. (See id. ¶ 11.) See generally BlackRock Financial Management Inc. v. Segregated Account of Ambac Assurance Corp., 673 F.3d 169, 173 (2d Cir.2012) (Residential mortgage loans, rather than being retained by the original mortgagee, may be pooled and sold “into trusts created to receive the stream of interest and principal payments from the mortgage borrowers. The right to receive trust income is parceled into certificates and sold to investors, called certificateholders. The trustee hires a mortgage servicer to administer the mortgages by enforcing the mortgage terms and administering the payments. The terms of the securitization trusts as well as the rights, duties, and obligations of the trustee, seller, and servicer are set forth in a Pooling and Servicing Agreement․”)
The Complaint alleged that defendants claim to have purchased plaintiffs' loans and mortgages, through intermediaries, from First Franklin (see Third Amended Complaint ¶ 28) and to have “the right to collect and receive payment on [plaintiffs'] loans ․ pursuant to written agreements” (id. ¶¶ 30–31). Each securitization transaction involved written agreements (the “assignment agreements”), one of which was called a Pooling and Servicing Agreement (“PSA”). The PSAs, which by their terms are to be governed by New York law (see id. ¶ 29), “provided, inter alia, for the formation of the relevant Trust, the conveyance of a pool of mortgages to [Deutsche Bank],[ ]as trustee, the issuance of mortgage-backed securities representing interests in the pooled loans, and the servicing of the pooled loans by a loan servicer” (id. ¶ 28 (internal quotation marks omitted)). Defendants claim that in each such transaction, First Franklin sold a pool of mortgage loans “to a sponsor ․ which, at closing, sold the loans through its affiliate, a depositor ․, to a trust.” (Id. ¶ 63 (internal quotation marks omitted).) Thus, the intention of the parties to the sales and securitization transactions was that Deutsche Bank would become, “as Trustee, ․ the legal owner and holder of [the] Notes and [deeds of trust]” originated by First Franklin (id. ¶ 28 (internal quotation marks omitted)).
1. Plaintiffs' Challenges to the Assignments
The Complaint challenged defendants' (a) ownership of plaintiffs' loans and mortgages, (b) right to collect and receive payment on the loans, and (c) right to commence or authorize the commencement of foreclosure proceedings where payments have not been made or received (see, e.g., Third Amended Complaint ¶¶ 32, 80, 120, 122, 123, 126), on the ground, inter alia, that there was a lack of compliance with provisions of the assignment agreements. First, the Complaint alleged that the assignments were defective because plaintiffs' mortgage loans were “not specifically list[ed]” in mortgage loan schedules or other attachments to the assignment agreements. (Id. ¶¶ 36, 52; see also id. ¶ 66.) Indeed, according to the Complaint, the assignment agreements did “not specifically list any promissory note, mortgage or deed of trust” that was allegedly sold, transferred, assigned, or conveyed to defendants. (Id. ¶ ¶ 37, 53 (emphasis added); see also id. ¶¶ 54, 59, 65.)
The Complaint also alleged that assignments by First Franklin to Deutsche Bank of four of plaintiffs' deeds of trust were executed and publicly recorded in 2009 or 2010, after First Franklin had ceased operations and years after the securitization transactions took place. (See id. ¶¶ 74–79.) Plaintiffs argue that the execution and recordation of these mortgage assignments after the securitization transactions that created the Defendant Trusts indicate that these mortgages were not included in the mortgage loan pools that were sold to those trusts.
In addition, the Complaint alleged that two PSA provisions as to documents that were to accompany the conveyance of loans and mortgages to the trusts were not complied with at the time of the securitization transactions. These were (a) a provision stating that an affiliate of the sponsor “has delivered or caused to be delivered to” a named custodian “the original Mortgage Note bearing all intervening endorsements necessary to show a complete chain of endorsements from the original payee” (Third Amended Complaint ¶ 38 (internal quotation marks omitted); see id. ¶¶ 40–42), and (b) a similar provision as to delivery of “the originals of all intervening assignments of Mortgage with evidence of recording thereon evidencing a complete chain of ownership from the originator of the Mortgage Loan to the last assignee” (id. ¶ 43 (internal quotation marks omitted); see id. ¶¶ 46–48; see also id. ¶¶ 69–73).
2. Alleged Injury to Plaintiffs
The Complaint implied that plaintiffs made their loan payments to Deutsche Bank and the Defendant Trusts. It alleged that “Defendants claim[ed] and assert [ed] that payments [we]re due to them monthly” (Third Amended Complaint ¶ 119), and that defendants “received and collected money from payments made by Lead Plaintiffs and Class Members” (id. ¶ 95; see also id. ¶¶ 104, 115) “based upon Defendants' claims of rights, title and interest in the loans in issue in this Action” (id. ¶ 115; see also id. ¶ 81 (“The proposed class is all persons who took loans originated by First Franklin in 2004, 2005 and 2006 and for which Deutsche [Bank] claims to act as the trustee and for which Defendant Trusts have received or collected payments since January 1, 2004.”)). The Complaint also alleged that “Defendants have commenced or authorized the commencement of foreclosure proceedings where payments have not been made or received” (id. ¶ 123), and that “[i]ndividuals and families have lost their homes and real property in foreclosure proceedings based upon the loans (including promissory notes, deeds of trust and mortgages) in issue in this Action” (id. ¶ 124).
The Complaint alleged that—and sought a declaratory judgment that—as a result of the alleged failures with regard to the assignment agreements, “Deutsche [Bank] and Defendant Trusts have not obtained ownership over and do not own [plaintiffs'] [ ]promissory notes and deeds of trust” (Third Amended Complaint ¶ 80) and have no “right to collect and receive payment on the [mortgage] loans” (id. ¶ 32) and no “right to foreclose on [plaintiffs'] real property ․ in the event that payments are not made” (id. ¶ 120).
While alleging that defendants received and collected money from plaintiffs that defendants “were not entitled to receive and collect” (Third Amended Complaint ¶ 95) and seeking as restitution and as damages “all payments on the mortgage loans in issue money [sic ] collected and received by Deutsche [Bank] and Defendant Trusts and their servicers, agents, employees and representatives” (id. WHEREFORE ¶¶ (a) and (b); see also id. ¶¶ 95–112), the Complaint did not allege or imply that any plaintiff or putative Class Member made loan payments in excess of amounts due, made loan payments to any entity other than defendants, or was subjected to duplicate billing or duplicate foreclosure actions.
B. The Dismissal of the Complaint
Defendants moved to dismiss the Third Amended Complaint on the ground, inter alia, that plaintiffs lacked standing to pursue claims based on alleged violations of agreements to which plaintiffs are not parties. In an opinion filed on March 28, 2013, the district court granted the motion to dismiss the Complaint for failure to state a claim on which relief can be granted, finding that plaintiffs lacked standing to challenge defendants' ownership of the notes and mortgages based on alleged noncompliance with the terms of the PSAs. See Rajamin v. Deutsche Bank National Trust Co., No. 10 Civ. 7531, 2013 WL 1285160, at *3–*4 (S.D.N.Y. Mar. 28, 2013). The court pointed out that
Plaintiffs do not claim to have been parties to the PSAs, and none of the PSAs includes provisions indicative of party status for borrowers or mortgagors. The weight of caselaw throughout the country holds that a non-party to a PSA lacks standing to assert noncompliance with the PSA as a claim or defense unless the non-party is an intended (not merely incidental) third party beneficiary of the PSA.
Id. at *3. The court stated that “[t]he intent to render a non-party a third-party beneficiary must be clear from the face of the PSA,” and that
Plaintiffs have not alleged any facts that would support plausibly a claim that they are intended third-party beneficiaries of the PSAs. Thus, Plaintiffs lack standing to challenge Defendants' alleged ownership of the Notes and [deeds of trust] or authority to foreclose based on non-compliance with the PSAs.
In addition, the district court noted the Complaint's allegation that mortgage loan schedules accompanying the assignment agreements did not reflect plaintiffs' loans. The court rejected that allegation as baseless, finding that the mortgage loan schedules in question, submitted by defendants in support of their motion to dismiss the Third Amended Complaint, do in fact identify the relevant loans. See id. at *3 n. 2.
On appeal, plaintiffs contend that the district court erred in dismissing the Complaint, arguing, inter alia, that they have a “concrete interest in putting to the test Defendants' claims to own [plaintiffs'] mortgages and mortgage documents.” (Plaintiffs' brief on appeal at 13.) Although it is not clear whether the status of plaintiffs' mortgages was in the record before the district court in 2013 when it dismissed the complaint, it is now undisputed that “[i]n 2009 or 2010, each Plaintiff was declared to be in default on his [sic ] mortgage, and foreclosure proceedings were instituted” (id. at 5); that “[i]n connection with the institution of said foreclosure proceedings, Deutsche [Bank], as trustee of one of the Defendant Trusts, claimed to own each Plaintiff's mortgage” (id. (citing the Third Amended Complaint)); and that “Plaintiffs are not seeking to enjoin foreclosure proceedings” (Plaintiffs' brief on appeal at 5 n. 2). Assuming that these concessions have not rendered plaintiffs' claims moot, we affirm the district court's ruling that plaintiffs lack standing to pursue their challenges to defendants' ownership of the loans and entitlement to payments.
“[T]he question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues. This inquiry involves both constitutional limitations on federal-court jurisdiction and prudential limitations on its exercise.” Warm v. Seldin, 422 U.S. 490, 498 (1975). The plaintiff bears the burden of establishing such standing. See, e.g., Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1992) (constitutional standing); Premium Mortgage Corp. v. Equifax, Inc., 583 F.3d 103, 108 (2d Cir.2009) (prudential standing). We review de novo a decision as to a plaintiff's standing to sue based on the allegations of the complaint and the undisputed facts evidenced in the record. See, e.g., Rent Stabilization Ass'n v. Dinkins, 5 F.3d at 594. “[I]f the court also resolved disputed facts” in ruling on standing, “we will accept the court's findings unless they are ‘clearly erroneous.’ “ Id. For the reasons that follow, we conclude that plaintiffs established neither constitutional nor prudential standing to pursue the claims they asserted.
A. Constitutional Standing
The “irreducible constitutional minimum of standing” under Article III of the Constitution includes the requirement that “the plaintiff must have suffered an injury in fact ․ which is (a) concrete and particularized, ․ and (b) actual or imminent, not conjectural or hypothetical.” Lujan v. Defenders of Wildlife, 504 U.S. at 560 (internal quotation marks omitted). The record in this case reveals that plaintiffs' Third Amended Complaint alleged only injuries that were hypothetical. The chronology of the events alleged helps to make this clear.
Plaintiffs alleged that their loan and mortgage transactions with First Franklin took place in 2005 or 2006 (see Third Amended Complaint ¶¶ 2–8); that “Defendants claim[ed] and assert[ed] that payments [we]re due to them monthly” (id. ¶ 119); and that, for the loans taken out by plaintiffs and the members of the class they seek to represent, “Defendant Trusts have received or collected payments since January 1, 2004” (id. ¶ 81). Plaintiffs asserted that they “[we]re suffering damages with each and every payment to Defendants,” on the theory that defendants “[we]re not proper parties to receive and collect such payments.” (Id. ¶ 122.) But plaintiffs acknowledge that they took out the loans in 2005 or 2006 and were obligated to repay them, with interest; and they have not pleaded or otherwise suggested that they ever paid defendants more than the amounts due, or that they ever received a bill or demand from any entity other than defendants. Thus, there is no allegation that plaintiffs have paid more than they owed or have been asked to do so.
Further, plaintiffs' challenge to defendants' claim of ownership of plaintiffs' loans, implying that the loans are owned by some other entity or entities, is highly implausible, for that would mean that since 2005 there was no billing or other collection effort by owners of loans whose principal alone totaled $3,776,000. The suggestion that plaintiffs were in imminent danger—or, indeed, any danger—of having to make duplicate loan payments is thus entirely hypothetical.
For the same reason, the Complaint's assertion that “Defendants have commenced or authorized the commencement of foreclosure proceedings where payments have not been made or received” (Third Amended Complaint ¶ 123) does not indicate an actual or imminent, rather than a conjectural or hypothetical, injury. Plaintiffs have acknowledged on this appeal that they were declared in default on their mortgages, and that foreclosure proceedings were instituted by Deutsche Bank, claiming to own those mortgages, in 2009 or 2010. Just as there was no allegation in the Complaint that any entity other than defendants had demanded payments, there was no allegation of any threat or institution of foreclosure proceedings against any plaintiff by any entity other than defendants. And had there been any entity that asserted a claim conflicting with the right of Deutsche Bank to foreclose on plaintiffs' mortgages, surely the interposition of such a claim would have been alleged in the Third Amended Complaint, which was not filed until 2011.
On appeal, plaintiffs purport to assert injury by arguing that the alleged defects in the assignments of their mortgages would prevent Deutsche Bank from being able to reconvey clear title to plaintiffs when they pay off their mortgage loans. (See Plaintiffs' brief on appeal at 13, 17.) We note that such an injury was not alleged in the Complaint, and it is difficult to view it as other than conjectural or hypothetical, given that plaintiffs, several years ago, defaulted on their loans. See, e.g., Rajamin v. Deutsche Bank National Trust Co., No. B237560, 2012 WL 5448401, at *1–*3 & n. 3 (Cal.Ct.App.2d Dist. Nov. 8, 2012) (“Rajamin's California case ”) (affirming dismissal, for lack of standing, of Rajamin's claim for declaratory relief as to Deutsche Bank's ownership of his promissory note, and noting that Rajamin's home had been sold in foreclosure).
We conclude that plaintiffs failed to allege injuries sufficient to show constitutional standing to pursue their claims.
B. Prudential Standing
Even if plaintiffs had Article III standing, we conclude that they lack prudential standing. The “prudential standing rule ․ normally bars litigants from asserting the rights or legal interests of others in order to obtain relief from injury to themselves.” Warth v. Seldin, 422 U.S. at 509. “[T]he plaintiff generally must assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties.” Id. at 499. Plaintiffs have advanced several theories for prudential standing. Each fails.
1. The Breach–of–Contract Theory
The principles that any contractual provision “may be waived by implication or express intention of the party for whose benefit the provision inures,” Wolff & Munier, Inc. v. Whiting–Turner Contracting Co., 946 F.2d 1003, 1009 (2d Cir.1991) (internal quotation marks omitted), and that strangers may not assert the rights of those who “do not wish to assert them,” Singleton v. Wulff, 428 U.S. 106, 113–14 (1976) (plurality opinion), underlie the rule adhered to in New York—whose law governs the assignment agreements (see Third Amended Complaint ¶ 29)—that the terms of a contract may be enforced only by contracting parties or intended third-party beneficiaries of the contract, see, e.g., Mendel v. Henry Phipps Plaza West Inc., 6 N.Y.3d 783, 786, 811 N.Y .S.2d 294, 297 (2006) (mere incidental beneficiaries of a contract are not allowed to maintain a suit for breach of the contract); see also Restatement (Second) of Contracts § 315 (1981) (“An incidental beneficiary acquires by virtue of the promise no right against the promisor or the promisee.”).
This rule has been applied to preclude claims where mortgagors have sought relief from their loan obligations on grounds such as those asserted here. See, e.g., Cimerring v. Merrill Lynch Mortgage Investors, Inc., No. 8727/2011, 2012 WL 2332358, at *9 (N .Y. Sup.Ct. Kings Co. June 13, 2012) (“plaintiffs lack standing to allege a claim for breach of the PSA because they are not parties to this contract, nor do they allege that they are third-party beneficiaries to the agreement”); see generally Reinagel v. Deutsche Bank National Trust Co., 735 F.3d 220, 228 n. 29 (5th Cir.2013) (“courts invariably deny mortgagors third-party status to enforce PSAs”). Indeed, in an action brought by a successor trustee of another First Franklin mortgage loan trust, the Appellate Division of the New York Supreme Court (“Appellate Division”) ruled that mortgagors lack standing to assert such breaches, citing as authority the opinion of the district court in this very case: While holding that the plaintiff bank was not entitled to summary judgment in its action to foreclose the defendants' mortgage, the Appellate Division affirmed the lower court's denial of the defendant mortgagors' motion to dismiss the foreclosure complaint, ruling that the defendants
did not have standing to assert noncompliance with the subj ect lender's pooling service agreement (see Rajamin v. Deutsche Bank Natl. Trust Co., ․ 2013 WL 1285160, 2013 U.S. Dist LEXIS 45031 [SD N.Y.2013] ).
Bank of New York Mellon v. Gales, 116 A.D.3d 723, 725, 982 N.Y .S.2d 911, 912 (2d Dep't 2014).
Here, plaintiffs contend that their loans were not acquired by the Defendant Trusts pursuant to the assignment agreements—of which the PSAs were part—because, plaintiffs allege, parties to those agreements did not perform all of their obligations under the PSAs. Although noncompliance with PSA provisions might have made the assignments unenforceable at the instance of parties to those agreements, the district court correctly noted that plaintiffs were not parties to the assignment agreements. And plaintiffs have not shown that the entities that were parties to those agreements intended that plaintiffs—whose financial obligations were being bought and sold—would in any way be beneficiaries of the assignments. We conclude that the district court properly ruled that plaintiffs lacked standing to enforce the agreements to which they were not parties and of which they were not intended beneficiaries.
Plaintiffs also argue that the district court's third-party-beneficiary analysis was flawed because “Plaintiffs are first parties to their mortgage notes and deeds of trust” (Plaintiffs' brief on appeal at 17 (emphasis added)). This argument is far wide of the mark. Plaintiffs are not suing for breach or nonperformance of their loan and mortgage agreements; those agreements provide, inter alia, that plaintiffs' loans “can be sold one or more times without prior notice to [the b]orrower” (Third Amended Complaint Exhibit E ¶ 20; id. Exhibit G ¶ 20). The notes and deeds of trust to which plaintiffs were parties did not confer upon plaintiffs a right against nonparties to those agreements to enforce obligations under separate agreements to which plaintiffs were not parties.
2. The Breach–of–Trust Theory
In an effort to circumvent their lack of standing to make their contract arguments, plaintiffs argue that assignments failing to comply with the PSAs violated laws governing trusts. They rely on a New York statute that provides: “If the trust is expressed in the instrument creating the estate of the trustee, every sale, conveyance or other act of the trustee in contravention of the trust, except as authorized by ․ law, is void.” N.Y. Estates, Powers and Trusts Law (“EPTL”) § 7–2.4 (McKinney 2002). Here, the PSAs are the instruments creating the trust estates, and plaintiffs argue that the PSAs were “contraven[ed]” by the Trustee's acceptance of mortgage loans conveyed in a manner that did not comply with the procedural formalities that the PSAs specified, thereby rendering those conveyances void under the statute. (E.g., Plaintiffs' brief on appeal at 12.) Plaintiffs' reliance on trust law is misplaced.
First, as the district court concluded, this argument depends on plaintiffs' contention that parties to the assignment agreements violated the terms of the PSAs. If those agreements were not breached, there is no foundation for plaintiffs' contention that any act by the trusts' trustee was unauthorized. But as discussed above, plaintiffs, as nonparties to those contracts, lack standing to assert any nonperformance of those contracts.
Second, under New York law, only the intended beneficiary of a private trust may enforce the terms of the trust. See, e.g., Matter of the Estate of McManus, 47 N.Y.2d 717, 719, 417 N. Y.S.2d 55, 56 (1979) (“McManus ”) (persons who “were not beneficially interested in the trust ․ lack[ed] standing to challenge the actions of its trustee”); Cashman v. Petrie, 14 N.Y.2d 426, 430, 252 N.Y.S.2d 447, 450 (1964) (mere incidental beneficiaries of a trust “cannot maintain a suit to enforce the trust”); Naversen v. Gaillard, 38 A.D.3d 509, 509, 831 N.Y.S.2d 258, 259 (2d Dep't 2007); see also Restatement (Third) of Trusts § 94(1) (2012) (“A suit against a trustee of a private trust to enjoin or redress a breach of trust or otherwise to enforce the trust may be maintained only by a beneficiary or by a co-trustee, successor trustee, or other person acting on behalf of one or more beneficiaries.”); cf. Rajamin's California case, 2012 WL 5448401, at *2 (“A homeowner who gives a deed of trust to secure his repayment of a home loan does not have standing to challenge the foreclosing party's authority to act on behalf of the deed of trust's beneficiary.”). Where the challengers to a trustee's actions are not beneficiaries, and hence lack standing, the court “need not decide whether the conduct of the trustee comported with the terms of the trust.” McManus, 47 N.Y.2d at 719, 417 N.Y.S.2d at 56.
Third, even if plaintiffs had standing to make an argument based on EPTL § 7–2.4, on the theory that a mortgagor has standing to “challenge[ ] a mortgage assignment as invalid, ineffective, or void,” Woods v. Wells Fargo Bank, N.A., 733 F.3d 349, 354 (1st Cir.2013) (internal quotation marks omitted), the weight of New York authority is contrary to plaintiffs' contention that any failure to comply with the terms of the PSAs rendered defendants' acquisition of plaintiffs' loans and mortgages void as a matter of trust law. Under New York law, unauthorized acts by trustees are generally subject to ratification by the trust beneficiaries. See King v. Talbot 40 N.Y. 76, 90 (1869) (“[t]he rule is perfectly well settled, that a cestui que trust is at liberty to elect to approve an unauthorized investment, and enjoy its profits, or to reject it at his option”); Mooney v. Madden, 193 A.D.2d 933, 933–34, 597 N. Y.S.2d 775, 776 (3d Dep't) (“Mooney ”) (“A trustee may bind the trust to an otherwise invalid act or agreement which is outside the scope of the trustee's power when the beneficiary or beneficiaries consent or ratify the trustee's ultra vires act or agreement ․”), lv. dismissed, 82 N.Y.2d 889, 610 N.Y.S.2d 153 (1993); Washburn v. Rainier, 149 A.D. 800, 803–04, 134 N.Y.S. 301, 304 (2d Dep't 1912); Hine v. Hine, 118 A .D. 585, 592, 103 N.Y.S. 535, 540 (4th Dep't 1907); English v. McIntyre, 29 A.D. 439, 448–49, 51 N.Y.S. 697, 704 (1st Dep't 1898) (“where the trustee has engaged with the trust fund in an unauthorized business ․ the rule is that the cestui que trust may ratify the transactions of the trustee and take the profits, if there are profits”). Moreover, “beneficiary consent may be express or implied from the acceptance of the trustee's act or agreement and may be given either after or before the trustee's act․” Mooney, 193 A.D.2d at 934, 597 N.Y.S.2d at 776. To be an effective ratification, however, “all of the beneficiaries” must “expressly or impliedly” agree. Id. at 933, 597 N.Y.S.2d at 776; see also id. at 934, 597 N.Y.S.2d at 776 (remanding for determination of whether “remainder persons who also [we]re beneficiaries” had “consented ․ and/or ratified”).
The principle that a trustee's unauthorized acts may be ratified by the beneficiaries is harmonious with the overall principle that only trust beneficiaries have standing to claim a breach of trust. If a stranger to the trust also had such standing, the stranger would have the power to interfere with the beneficiaries' right of ratification.
Because, as the above authorities demonstrate, a trust's beneficiaries may ratify the trustee's otherwise unauthorized act, and because “a void act is not subject to ratification,” Aronoff v. Albanese, 85 A.D.2d 3, 4, 446 N.Y.S.2d 368, 370 (2d Dep't 1982), such an unauthorized act by the trustee is not void but merely voidable by the beneficiary.
For the contrary position, plaintiffs rely principally on Genet v. Hunt, 113 N.Y. 158, 21 N.E. 91 (1889) (“Genet ”), and Wells Fargo Bank, N.A. v. Erobobo, No. 31648/2009, 2013 WL 1831799 (Sup.Ct. Kings Co. Apr. 29, 2013) (“Erobobo ”). Neither case compels the conclusion that a trustee's acceptance of property on behalf of a trust without complying with the terms of the trust agreement is void.
In Genet, the New York Court of Appeals described the principal question before it as whether certain testamentary trusts created under an 1867 will (the “bequests”) constituted the exercise of a power of appointment conferred by an 1853 trust deed, causing the bequests' suspension of rights of alienation to date back to 1853 and to violate the rule against perpetuities—i.e., whether the bequests were “void for remoteness.” 113 N.Y. at 165, 21 N.E. at 92. The testatrix in Genet was the settlor and a beneficiary of the 1853 trust; the trust's other beneficiaries, contingent remaindermen, were the testatrix's heirs. See id. at 169, 21 N.E. at 93. The Court, en route to a conclusion that the bequests must be treated as dating back to the 1853 trust and as violating the rule against perpetuities, observed that a New York statutory provision (which was a predecessor to EPTL § 7–2.4) provided that acts of a trustee in contravention of the trust's terms were void; the Court thus stated that the settlor and income beneficiary of the trust could not “alone, or in conjunction with the trustees, ․ abrogate the trust,” 113 N.Y. at 168, 21 N.E. at 93 (emphasis added). The Genet Court did not advert to the possibility of ratification; to be an effective ratification, there must be agreement by “all of the beneficiaries,” including “remainder persons who also are beneficiaries,” Mooney, 193 A.D.2d at 934, 597 N.Y. S.2d at 776. Although the general permissibility of ratification had been described 20 years before Genet as “perfectly well settled,” King v. Talbot, 40 N.Y. at 90, there was no possibility in Genet that all of the 1853 trust's beneficiaries could have consented to any attempted abrogation or contravention of trust terms by the testatrix during her lifetime because the remainder beneficiaries, the testatrix's heirs, could not be ascertained until her death. We conclude that Genet has no bearing on the claims of plaintiffs in the present case.
Although Erobobo concerned events more similar to those in this case, as it involved a mortgage, a securitization trust, and allegations of unauthorized acts by a trustee, we find it unpersuasive. In Erobobo, a trial court, in denying the plaintiff bank's motion for summary judgment in its foreclosure action, stated that “[u]nder New York Trust Law, every sale, conveyance or other act of the trustee in contravention of the trust is void. EPTL § 7–2.4.” 2013 WL 1831799, at *8. But the court so stated without any citation or discussion of the New York authorities holding (a) that only the beneficiary of a trust, or one acting on the beneficiary's behalf, has standing to enforce the terms of the trust, and (b) that the beneficiaries may ratify otherwise unauthorized acts of the trustee.
While a few other courts have reached conclusions about EPTL § 7–2.4 similar to that of the Erobobo court, see, e.g., Auroa Loan Services LLC v. Scheller, No.2009–22839, 2014 WL 2134576, at *2–*4 (N.Y. Sup.Ct. Suffolk Co. May 22, 2014); Glaski v. Bank of America, National Association, 218 Cal.App. 4th 1079, 1094–98, 160 Cal.Rptr.3d 449, 461–64 (5th Dist.2013), we are not aware of any New York appellate decision that has endorsed this interpretation of § 7–2.4. And most courts in other jurisdictions discussing that section have interpreted New York law to mean that “a transfer into a trust that violates the terms of a PSA is voidable rather than void,” Dernier v. Mortgage Network, Inc., 2013 VT 96, ¶ 34, 87 A.3d 465, 474 (2013); see, e.g., Bank of America National Ass'n v. Bassman FBT, L.L.C., 2012 IL App (2d) 110729, ¶¶ 18–21, 981 N.E.2d 1, 8–10 (2d Dist.2012); see also Butler v. Deutsche Bank Trust Co. Americas, 748 F.3d 28, 37 n. 8 (1st Cir.2014) (“not [ing] without decision ․ that the vast majority of courts to consider the issue have rejected Erobobo's reasoning, determining that despite the express terms of [EPTL] § 7–2.4, the acts of a trustee in contravention of a trust may be ratified, and are thus voidable”).
In sum, we conclude that as unauthorized acts of a trustee may be ratified by the trust's beneficiaries, such acts are not void but voidable; and that under New York law such acts are voidable only at the instance of a trust beneficiary or a person acting in his behalf. Plaintiffs here are not beneficiaries of the securitization trusts; the beneficiaries are the certificateholders. Plaintiffs are not even incidental beneficiaries of the securitization trusts, for their interests are adverse to those of the certificateholders. Plaintiffs do not contend that they did not receive the proceeds of their loan transactions; and their role thereafter was simply to make payments of the principal and interest due. The law of trusts provides no basis for plaintiffs' claims.
3. The Nothing–Was–Transferred and Related Theories
In another effort to have the assignments of their mortgages to Defendant Trusts categorized as absolutely void, plaintiffs argue that an attempt to assign a property right that is not owned is without effect, and they assert that the entity from which defendants claim to have received plaintiffs' loans and mortgages—the depositor—did not own them. Even assuming that “standing exists for challenges that contend that the assigning party never possessed legal title,” Woods v. Wells Fargo Bank, N.A., 733 F.3d at 354, this argument suffers fatal flaws.
First, the Complaint did not directly allege that the depositor did not own plaintiffs' loans and mortgages. Instead, noting defendants' reliance on documents pertaining to each mortgage loan, the Complaint alleged that the mortgage loan schedules “do[ ] not specifically list” plaintiffs' notes or mortgages (e.g., Third Amended Complaint ¶ 36), and indeed “do[ ] not specifically list any promissory note, mortgage or deed of trust or name of any person or individuals” (e.g., id. ¶ 37 (emphasis added)). Thus, plaintiffs' voidness contention rests on the supposition that the mortgage assignment agreements did not purport to assign any mortgages—or, indeed, any related interests—a supposition that is entirely implausible.
Second, the district court noted plaintiffs' argument and concluded that it was baseless, finding that the mortgage loan schedules submitted by defendants in support of their motion to dismiss did in fact identify the relevant loans. See 2013 WL 1285160, at *3 n. 2. Although plaintiffs, in their reply brief on appeal, reiterate the implausible proposition that “no schedule specifying the loans [wa]s attached” to the assignment agreements (Plaintiffs' reply brief on appeal at 7), their briefs do not dispute or even mention the district court's factual finding. We therefore regard any challenge to this finding as waived.
Lastly, we reject plaintiffs contention that the assignments of some of plaintiffs' mortgages were void because the assignments were recorded after the closing dates of the Defendant Trusts or because the named assignor was First Franklin rather than the depositors named in the PSAs. To the extent that plaintiffs argue that these assignments violated the PSAs, the argument, for reasons already discussed, is not one that plaintiffs have standing to make. To the extent that plaintiffs rely on the dates of the recorded mortgage assignments to imply that the assignments of their loans and mortgages to defendants were a sham, we reject the implication as implausible. A post-closing recordation does not in itself suggest that the assignments were made at the time of the recordation, and the record does not give rise to such a suggestion. The PSAs themselves were sufficient to assign plaintiffs' obligations to Deutsche Bank as of the assignments' effective dates. (See, e.g., First Franklin Mortgage Loan Trust 2006–FF11 Pooling and Servicing Agreement, dated August 1, 2006 (“FFMLT 2006–FF11 PSA”), at § 2.01(a) (“The Depositor, concurrently with the execution and delivery hereof, hereby sells, transfers, assigns, sets over and otherwise conveys to the Trustee for the benefit of the Certificateholders ․ all the right, title and interest of the Depositor in” the principal and interest on the mortgage loans (emphases added)).
The subsequent recording of mortgage assignments does notimply that the promissory notes and security interests had not been effectively assigned under the PSAs. Under the law of either California or New York, when a note secured by a mortgage is assigned, the “mortgage passes with the debt as an inseparable incident.” U.S. Bank, N.A. v. Collymore, 68 A.D.3d 752, 754, 890 N.Y.S.2d 578, 580 (2d Dep't 2009); accord Domarad v. Fisher & Burke, Inc., 270 Cal.App.2d 543, 553, 76 Cal.Rptr. 529, 535 (1st Dist.1969) (“a deed of trust is a mere incident of the debt it secures and ․ an assignment of the debt carries with it the security” (internal quotation marks omitted)). The assignment of a mortgage need not be recorded for the assignment to be valid. See, e.g., MERSCORP, Inc. v. Romaine, 8 N.Y.3d 90, 98–99, 828 N .Y.S.2d 266, 269–70 (2006); Wilson v. Pacific Coast Title Insurance Co., 106 Cal.App.2d 599, 602, 235 P.2d 431, 433 (4th Dist.1951). Thus, the recorded assignments do not support plaintiffs' contention that their loans and mortgages were not owned by defendants.
Moreover, plaintiffs have not alleged that the promissory notes were not conveyed to the Trustee in a timely manner. Section 2.01(b) of the PSAs states that documentation, including each “original Mortgage Note” and each “original recorded Mortgage” “has [been] delivered ․ to the Custodian.” The fact that plaintiffs mount no viable challenge to the timeliness of the assignment of the promissory notes scuttles their contention that the mortgages were not timely assigned.
Finally, although plaintiffs' contend that defendants do not “ha[ve] custody ” of the notes (Plaintiffs' reply brief on appeal at 8 (emphasis added)), that contention does not refute defendants' claim of ownership. While the Complaint partially quotes from § 2.01(b)(1) of the FFMLT 2006–FF11 PSA, alleging that it “states in relevant part: ‘(b) ․ Depositor has delivered or caused to be delivered to Custodian ․ (i) the original Mortgage Note’ “ (Third Amended Complaint ¶ 38), the second ellipsis in that allegation omits the quite relevant words “for the benefit of the Certificateholders.” Moreover, § 8.02(e) of the FFMLT 2006–FF11 PSA provides that “the Trustee may execute any of the trusts or powers hereunder ․ by or through ․ custodians.” The apparent “custody” of plaintiffs' notes by custodians, which the assignment agreements explicitly allow the Trustee to use, does not imply that those agreements failed to convey ownership of plaintiffs' obligations to defendants.
We have considered all of plaintiffs' arguments on this appeal and have found them to be without merit. The judgment of the district court is affirmed.
KEARSE, Circuit Judge:
Decided on July 14, 2011
Supreme Court, New York County
Damon G. Barber, Plaintiff,
Deutsche Bank Securities, Inc. and DEUTSCHE BANK AG, d/b/a DEUTSCHE BANK AG NEW YORK, Defendants.
Melvin L. Schweitzer, J.
This matter arises out of a compensation arrangement between plaintiff Damon G. Barber (Barber) and defendant Deutsche Bank Securities, Inc. (Securities). It involves issues including New York's Statute of Frauds, no oral modification clauses, an alleged breach of the implied covenant of good faith and fair dealing, and the interpretation of New York Labor Law § 193.
Plaintiff Barber filed a complaint against Securities and Deutsche Bank AG collectively (Deutsche Bank) on March 25, 2011. Defendants move the court pursuant to CPLR 3211 (a) (1), CPLR 3211 (a) (5), and CPLR 3211 (a) (7) for an order dismissing the complaint in its entirety.
The Offer Letter
Plaintiff is a former Managing Director of Securities whose employment in New York with Securities began pursuant to an offer letter (the "Offer Letter") dated August 6, 2007. The Offer Letter provided that Barber would receive a base salary of $200,000 per year and guaranteed a non-discretionary bonus of $1.3 million for both 2007 and 2008. The Offer Letter also included a discretionary bonus that was to be determined at the sole discretion of Securities. In order to receive any bonus, the Offer Letter provided that an employee must be "actively employed" by Securities on the applicable Bonus Payout Date. However, if the employee was terminated "without cause" or resigned for "good reason" before the Bonus Payout Date, Securities agreed to pay the employee their guaranteed non-discretionary bonus, but not a discretionary bonus, on the Bonus Payout Date. The Offer Letter also included a no oral modification clause which read, "The Agreement can only be amended or modified in a written agreement signed by you and authorized representatives of Deutsche Bank."
In the summer of 2008, Alex Manson, Deutsche Bank's then Head of Coverage for Asia-Pacific, approached Barber about an assignment in Hong Kong, commencing January 1, 2009. Barber contends that because he and his partner (now wife) were well-established in New York, and he lacked business contacts in Hong Kong, he expressed to Manson that he would not be willing to relocate unless he knew in advance that he would be properly compensated. Barber states in his complaint that Manson expressly assured Barber that if he [*2]accepted the assignment, his compensation for 2009 would be "commensurate with the average of what other Managing Directors of the Natural Resources Group in New York received for 2009." Barber also discussed the assignment and received similar assurances from Michael Hill, Deutsche Bank's co-head of Global Natural Resources.
The Assignment Contract
Barber contends that he relied on these assurances when he decided to accept the assignment and signed the Assignment Contract (the "Assignment Contract") on November 19, 2008. The Assignment Contract provided a two year duration for the assignment but reserved Deutsche Bank's right to terminate his employment pursuant to the terms of the Offer Letter or to reassign Barber after consultation with him. The compensation provisions included a $200,000 yearly base salary and contained a discretionary bonus provision. There was no mention of a guaranteed bonus of $1.3 million or any other amount. Additionally, the Assignment Contract stated that the terms therein worked in conjunction with Deutsche Bank's Global Policy for International Assignments (the "IAP"). The IAP did not include a guaranteed bonus provision and reiterated that all discretionary incentive compensation was paid at the sole discretion of Deutsche Bank unless there was a written agreement that stated otherwise. The Assignment Contract did not include a no-oral-modification clause but provided that in the event of an inconsistency between the terms of the Assignment and the terms of the Offer Letter, the Assignment Contract would prevail.
Barber commenced his employment in Hong Kong on January 1, 2009. On December 10, 2009, Barber was told that he was being terminated effective January 29, 2010 due to the global credit crisis. There was no effort to reassign him to another position. Barber's termination date was two weeks prior to the Bonus Payout Date for the 2009 calendar year, and consequently he did not receive any bonus for 2009.
Barber claims that this failure to pay a bonus for 2009 is a breach of the oral promises he received from Manson and Hill, as well as a breach of the implied covenant of good faith and fair dealing. Barber also contends that by the terms of the Assignment Contract, his assignment in Hong Kong was for a two year term and so his termination in January 2010 was premature. Barber is therefore also seeking damages for his unpaid salary for the remaining term of his employment contract.
Additionally, Barber brings claims based on New York Labor Law § 193, which prohibits a deduction from the wages of an employee. Barber seeks an amount as liquidated damages pursuant to Labor Law § 198.1-a. Deutsche Bank disputes the applicability of this statute and argues that any bonus that Barber may have received for 2009 was purely discretionary and therefore not covered by the statute's definition of "wages".
Barber initiated this action by filing a complaint alleging breach of contract, violation of New York Labor Law § 193, and breach of the implied covenant of good faith and fair dealing for both Deutsche Bank's failure to pay his 2009 bonus and for what Barber alleges to be a premature termination. Deutsche Bank seeks dismissal of these claims for failure to state a cause of action pursuant to CPLR 3211 (a) (7) and, more specifically, seeks to dismiss Barber's claim relating to a breach of the alleged oral promises as unenforceable under the Statute of Frauds pursuant to CPLR 3211 (a) (5). Deutsche Bank also argues that the bonus award in dispute does not constitute "wages" as defined in New York Labor Law § 193.
CPLR 3211 (a) provides, in pertinent part, "[a] party may move for judgment dismissing [*3]one or more causes of action asserted against him on the ground that (7) the pleading fails to state a cause of action . . . ." New York courts construe the complaint liberally and take facts alleged in the complaint as true when considering such a motion to dismiss. Breytman v Olinville Realty, LLC, 54 AD3d 703, 703-704 (2d Dept 2008). The criterion is whether the plaintiff has a cause of action, not necessarily whether the plaintiff has stated one. Guggenheimer v Ginzburg, 43 NY2d 268, 274-275 (1977). If allegations are discerned from the four corners of the complaint which, taken as a whole, state any cause of action recognized by law, a motion to dismiss under CPLR 3211 (a) (7) must fail. Cooper v 620 Prop. Assoc., 242 AD2d 359, 360 (2d Dept 1997).
Statute of Frauds
Deutsche Bank argues that Barber's complaint does not state a cause of action because the oral agreement that his allegations rely on is unenforceable under New York's Statute of Frauds. The Statute of Frauds provides in pertinent part:
"Every agreement, promise or undertaking is void, unless it or some note
or memorandum thereof be in writing, and subscribed by the party to be
charged therewith, or by his lawful agent, if such agreement, promise or
undertaking: By its terms is not to be performed within one year from the
making thereof "
NY Gen. Oblig. Law § 5-701 (a) (1). The purpose of this statute is to prevent fraud in proving the existence of certain agreements where there is no writing and the parties are unable to perform within a year. See Sheehy v Clifford Chance Rogers & Wells LLP, 3 NY3d 554, 560 (2004). Deutsche Bank contends that because the alleged oral promise was made in the summer of 2008 and payment of the 2009 bonus pursuant to the alleged oral promise would not have been made until the Bonus Payout Date in February 2010, the promise could not have been performed within a year. Therefore, the alleged oral promise would be barred by the Statute of Frauds.
Barber asserts that the Statute of Frauds is inapplicable because his employment could have been terminated in less than a year by invoking the "For Cause" or "Good Reason" provisions of the Offer Letter. Pursuant to the terms of the Offer Letter, Barber could be terminated at any time without cause or choose to leave for good reason and still receive his guaranteed non-discretionary bonus on the Payout Date. However, if Barber is terminated for cause or leaves without good reason, he is not entitled to any bonus. Barber argues that termination under these conditions could occur within a year of the alleged oral promise and therefore the Statute of Frauds does not apply. In short, he contends that the Offer Letter provided for at-will employment.
Barber crafts this argument to avoid conceding that his employment in Hong Kong was at-will. Barber's view is that although the Offer Letter contained language indicating that Barber's employment was at-will, the Assignment Contract did not contain any such language, and so his employment while on assignment was not at-will. Rather, Barber believes that his employment was for a two-year term as stated by the "Assignment Duration" provision in the Assignment Contract. The Assignment Contract also provides that Deutsche Bank reserves the right to terminate the assignment at any time and to reassign Barber to another position with Barber's consultation. Barber views his termination without reassignment as a violation of the duration provision in the Assignment Contract. However, the Assignment Contract specifically [*4]states that while on assignment, the employee would still be bound by the "notice, dismissal for cause, and confidentiality provisions" of his original employment agreement. Additionally, by the terms of the Assignment Contract, the assignment terms were meant to work in tandem with the terms of the Offer Letter. Therefore, the court is of the opinion that Barber's employment while on assignment continued to be at- will.
At-will employment is employment that may be terminated by either party for any reason or no reason whatsoever. See Cron v Hargro Fabrics, 91 NY2d 362, 367 (1998). Accordingly, New York courts have held that employment agreements of this type are without the proscription of the Statute of Frauds concerning one year performance. Id. Although the Bonus Payout Date is more than a year from when the alleged oral promise was made, courts have consistently ruled that a bonus term that is payable after one year does not bring at-will employment within the Statute of Frauds. Id. Therefore, Barber's claim of the existence of an oral contract is not barred by the Statute of Frauds.
Deutsche Bank also argues that the alleged oral promise is unenforceable because of the no-oral-modification clause in the Offer Letter. Deutsche Bank contends that because the Offer Letter only provided for a guaranteed non-discretionary bonus of $1.3 million for the years 2007 and 2008, any further bonuses that Barber might receive were at the sole discretion of Deutsche Bank. Deutsche Bank argues that because of the no-oral-modification clause, the terms of the Offer Letter could not be orally modified to guarantee Barber's bonus for 2009.
New York law provides:
"A written agreement or other written instrument which contains a provision
to the effect that it cannot be changed orally, cannot be changed by an executor
agreement unless such executor agreement is in writing and signed by the party
against whom enforcement of the change is sought or by his agent."
NY Gen. Oblig. Law § 15-301 (1). Pursuant to this statute, Deutsche Bank maintains that any alleged oral promise to pay Barber a 2009 bonus was ineffective in modifying the terms of the Offer Letter.
Barber, however, seeks to avoid the effect of this provision and the no-oral-modification clause by showing partial performance and equitable estoppel. See Baraliu v Vinya Capital LP, 2011 WL 102730, at *6 (SDNY Jan 6, 2011). In Rose v Spa Realty Assoc., 42 NY2d 338, 343 (1977), the court ruled that no-oral-modification clauses may be waived either by completed performance or partial performance. Where there is partial performance, the performance must be "unequivocally referable" to the oral modification. Id. Equitable estoppel applies where one party induces another's significant and substantial reliance upon an oral modification and the acting party's conduct is not otherwise referable to the written agreement. Id. at 344.
Barber allegedly obtained the oral promise during conversations with his superiors regarding his assignment to Hong Kong. Barber's complaint states that he informed Manson that he would not accept the assignment unless he knew he would be properly compensated. The no-oral-modification clause is overcome because Manson's alleged promise of a 2009 bonus was clearly made to induce Barber's acceptance of the assignment to Hong Kong and Barber's move to Hong Kong and his employment there for all of 2009 is clearly partial performance which is unequivocally referable to such an alleged oral promise. Furthermore, because Barber had no other contacts with Hong Kong and apparently no other reason to move there, the court [*5]concludes that Barber significantly and substantially relied on the alleged oral promise and, consequently, Deutsche Bank is equitably estopped from reliance on the no-oral-modification clause.
Subsequent Written Agreements Supersede Prior Oral Agreements
Although the court is of the opinion that Barber's claim is not defeated by application of the Statute of Frauds and the no-oral-modification clause in the Offer Letter, the written Assignment Contract, which was entered into after the alleged oral promise, supersedes the alleged oral promise and defeats Barber's claim. Under New York law, subsequent contracts regarding the same subject matter merge and subsume any prior agreements. See Cobb v. Chubb Corp., 2007 WL 7126612, at *6 (NY Sup Ct Jan 31, 2007). Barber's agreement regarding his assignment in Hong Kong is comprised of the Assignment Contract and the IAP, which is referred to therein. These two documents contain provisions regarding Barber's compensation, which is the same subject matter as the alleged oral agreement. Therefore, the prior alleged oral promise is merged and subsumed within the subsequent written Assignment Contract and IAP. Despite Barber's argument that the Assignment Contract did not subsume the oral agreement because it lacked an integration clause, New York courts have held that subsequent written agreements will subsume prior agreements even with the absence of an integration clause. See Indep. Energy Corp. v Trigen Energy Corp., 944 FSupp 1184, 1195 (SNDY 1996); Friedman v Ocean Dreams, LLC, 2007 WL 1687165, at *8 (NY Sup Ct June 11, 2007). Accordingly, the terms of the Assignment Contract and IAP must control.
Neither the Assignment Contract nor the IAP makes any reference to a guaranteed non-discretionary incentive bonus of $1.3 million or any other amount. In fact, both written documents only provide for a discretionary bonus and explicitly state that this bonus would be determined at the sole discretion of Deutsche Bank. According to the IAP, any change to the bonus terms must be in writing. Under New York law, an employee's entitlement to a bonus is governed entirely by the terms of the employer's bonus plan. See Hall v United Parcel Serv. of Am., 76 NY2d 27, 36 (1990); Brennan v JP Morgan Secs., Inc., 2004 WL 3314910, at *2 (NY Sup Ct Aug 31, 2004). An employee has no enforceable right to a bonus under a discretionary bonus plan. Brennan, 2004 WL 3314910, at *2. Although Barber did have a contractually enforceable guaranteed bonus for 2007 and 2008, the same was not true for the year 2009. Beyond 2008, any future bonuses were to be determined at the discretion of Barber's employer.
Barber's Employment Was At-Will
As stated previously, Barber's employment while on assignment continued to be at-will. Although the Assignment Contract specified that the assignment duration was for two years, Barber still was bound by the termination provisions of the Offer Letter and the IAP. Barber argues that the provision requiring consultation with an employee prior to reassignment indicates that Barber's assignment in Hong Kong could be terminated before two years, but not his employment with Deutsche Bank. However, as argued by Deutsche Bank, consultation with Barber before reassigning him within Deutsche Bank does not prevent the employer from terminating the employment altogether.
In Hughes v Standard Chartered Bank, 2010 WL 1644949 (SDNY Apr 14, 2010), the plaintiff was a former employee of the defendant who brought a breach of contract claim arising out of his termination while on assignment in Singapore. Hughes claimed that his termination was premature because his assignment agreement provided for a duration of three years. Id. at *4. The court held that this duration merely indicated the expected length of assignment and did [*6]not limit the employer's right to terminate employment. Id. Similarly, in the present case, the duration provided in Barber's Assignment Contract only pertained to the expected assignment duration and did not limit Deutsche Bank's prerogative to terminate Barber's employment. Accordingly, Barber does not have a claim for unpaid salary for the balance of the Assignment Contract. Barber's employment, even while on assignment, continued to be at-will and Deutsche Bank had no further payment obligation to Barber after termination of his employment.
Barber also argues that even if his termination was rightfully made under the terms of the Offer Letter, specifically under the "without cause" provision, he is still entitled to his guaranteed non-discretionary bonus for 2009. The Offer Letter provides that if an employee is terminated without cause, and is therefore not actively employed on the Bonus Payout Date, Deutsche Bank still will pay the employee's guaranteed non-discretionary bonus. However, because this court holds that the alleged oral promise to pay a guaranteed non-discretionary bonus for 2009 is not enforceable as it is superseded by the Assignment Contract and the IAP, Barber did not have a guaranteed non-discretionary bonus for 2009. Deutsche Bank, therefore, had no obligation to pay Barber a bonus of any kind on the Bonus Payout Date in February 2010.
The Implied Covenant of Good Faith and Fair Dealing
Barber also brings claims alleging a breach of the implied covenant of good faith and fair dealing for Deutsche Bank's failure to pay him a bonus in 2009 and for what Barber views as early termination. Every contract contains an implied covenant of good faith and fair dealing which is breached when one party acts in a way that deprives the other party of his right to receive benefits under their contract, even if such an act is not expressly forbidden by the agreement. Jaffe v Paramount Communications, 644 NYS2d 43, 47 (1996). However, the implied covenant of good faith and fair dealing cannot be used to create new duties or negate existing rights under the contract. See Richbell Info. Servs., Inc. v Jupiter Partners, LP, 309 AD2d 288, 302 (1st Dept 2003).
As stated above, the court is of the opinion that Barber's employment remained at-will during his assignment in Hong Kong. Consequently, Deutsche Bank had the contractual right to terminate Barber's employment at any time. Additionally, New York law does not impose an implied covenant of good faith and fair dealing in cases of termination of an at-will employee. Graves v Deutsche Bank Secs., Inc., 2010 WL 997178, at *5 (SDNY March 18, 2010). Deutsche Bank had an unabridged right to terminate Barber's employment at any time, even while on assignment in Hong Kong, which was not subject to a duty of good faith and fair dealing.
This court also has determined that Barber had no contractual right to a 2009 bonus because it was discretionary. The implied covenant of good faith and fair dealing does not create a right for Barber to receive a non-discretionary bonus in 2009. Barber argues that New York courts have held that even where discretion lies with a single party, the discretion still must be exercised in good faith. Travelers Int'l, AG v Trans World Airlines, Inc., 41 F3d 1570, 1575 (2d Cir 1994). However, the clear terms of Barber's employment contract provided that any bonus for 2009 would be purely discretionary. An employee has no enforceable right to a bonus under a discretionary bonus plan, and an employer's decision to not pay a bonus to an employee does not amount to a breach of the implied covenant of good faith and fair dealing. See Nikitovich v O'Neal, 40 AD3d 300, 300-01 (1st Dept 2007). Even if Barber still was employed by Deutsche Bank on the Bonus Payout Date for 2009, he still would have no guaranteed right to a bonus.
Barber claims that by terminating his employment only two weeks prior to the Bonus [*7]Payout Date, Deutsche Bank exercised its right in full compliance with the terms of the contract but in a way that frustrated Barber's expectations and the purpose of the contract. Barber, however, could not reasonably expect a bonus for 2009 when the terms of his employment clearly provided that discretionary bonuses were paid at the sole discretion of Deutsche Bank and the Offer Letter only provided for guaranteed bonuses in 2007 and 2008. See Graves, WL 997178, at *5 (holding that a memorandum regarding the discretionary nature of the employer's year-end bonus compensation process that was distributed to all employees could not give rise to a reasonable expectation that the employee was guaranteed a discretionary bonus). As a result, Deutsche Bank could not have frustrated Barber's expectation of a bonus when such an expectation was not objectively reasonable.
New York Labor Law § 193
The plaintiff also makes a claim under New York Labor Law § 193, which provides in pertinent part, that "[n]o employer shall make any deduction from the wages of an employee." Barber seeks liquidated damages and attorney's fees pursuant to Labor Law § 198.1-a which imposes a penalty where the employer's act was willful. Labor Law § 190(1) defines "wages" as "the earnings of an employee for labor or services rendered, regardless of whether the amount of earnings is determined on a time, piece, commission or other basis."
New York law holds that bonuses and other forms of incentive compensation that are contingent or dependent, at least in part, on the overall success of the employer business, do not constitute wages under Labor Law § 193. See Truelove v Northeast Capital, 95 NY2d 220, 224 (2000); Ferrari v Keybank Nat'l Ass'n, 2009 WL 35330 (WDNY Jan 5, 2009). Additionally, bonuses wholly subject to the employer's discretion also are not considered wages. See Fiorenti v Cent. Emergency Physicians, 187 Misc 2d 805, 808 (Sup Ct Nassau Cty 2001). The Offer Letter states that in exercising its discretion in determining incentive compensation, Deutsche Bank will consider several factors including the performance of the firm, the performance of the employee's division, and the employee's individual contribution. Because Barber's discretionary bonus depended in part on the financial success of his employer, and was to be paid or not paid at the sole discretion of Deutsche Bank, the bonus is not considered "wages" under the definition of the statute.
Barber makes the argument that guaranteed and nondiscretionary bonus payments have been considered "wages" by New York courts under the definition of Labor Law § 193. However, this court has determined that any bonus Barber may have received for 2009 was not guaranteed and was discretionary. Consequently, Barber's claim under Labor Law § 193 is without merit.
For the above reasons, this court is of the opinion that Barber has no valid cause of action against Deutsche Bank for payment of a bonus or other compensation under the terms of the Assignment. His claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and his New York Labor Law § 193 claims are dismissed.
Accordingly, it is
ORDERED that defendants' motion to dismiss the complaint pursuant to CPLR 3211 (a) (7) is granted.
Dated:July 14, 2011
/s/Melvin L. Schweitzer