Sometimes, companies want employees to think like owners, and for good reason. With a vested interest in their work and the team’s success, employees are more motivated to perform at the highest level. They also focus on what’s best for the business rather than just themselves. But firing an employee with “skin in the game” can be a mess, as was the case in Dwyer v. Avo Construction LLC, Index No. 53784/2019.

In 2014, Avo Construction hired John Dwyer as its Director of Construction. According to Dwyer, the Company referred to him as a partner. Avo also offered Dwyer the opportunity to invest in projects. Soon after he started working for the Company, Dwyer made a $100,000 loan to an Avo-related entity working on a specific project. The loan documents were signed by Elizabeth McDonald, Avo’s sole member, who also signed a personal guaranty.  Dwyer was repaid the principal, plus a 12% return. This was the first of four loans that Dwyer made to Avo projects from 2014 to 2018. Each time he received essentially the same loan documents and was repaid his principal investment with a 12% return.

Eventually, in November 2017, the Company asked Dwyer for money to help make payroll for projects. Over a ten-week period, Dwyer contributed $237,000. According to Dwyer, the Avo acknowledged and recorded the loans, and he provided the funds based on the parties’ prior loan experience. Even though, Dwyer says, he was told he would receive paperwork to memorialize these loans, just as he did with the others, and two other individuals working for the Company promised him orally and in writing that he would receive repayment with interest, no loan documents were signed. In January 2019, Avo fired Dwyer.

Dwyer then sued Avo, McDonald, and the two others who promised he would get repaid.

Breach of Contract

Avo moved to dismiss Dwyer’s breach of contract claim, but Justice Walsh denied Avo’s motion based on Avo’s receipt of $237,000 from Dwyer and his allegation that Avo agreed to repay him on terms similar to those in the other loans he made to Avo. Justice Walsh, however, dismissed the breach of contract claim against the individuals because Dwyer did not allege that they agreed to be bound by the payroll loans in their personal capacities. Justice Walsh explained that, “[a] corporate officer may not be held personally liable merely because, while acting for the corporation, he made decisions and took steps that resulted in the corporation’s breaching its contract” (citations omitted). “In order to hold a corporate officer liable for inducing the corporation to breach its contract, it must be alleged and proved that the officer’s actions were taken outside the scope of employment, that the officer personally profited from the acts, or that the officer committed any independently tortious acts” (citations omitted).

Unjust Enrichment

Unjust enrichment claims are typically dismissed where there is a valid and enforceable contract between the parties. But here, Justice Walsh sustained this claim against Avo as not duplicative because “Avo is disputing that there was any agreement between the parties with regard to this loan” (citing, inter alia, First Class Concrete Corp. v. Rosenblum, 167 A.D.3d 989 (2d Dep’t 2018) (“[s]ince the defendants disputed the existence and enforceability of a contract covering the dispute at issue, the plaintiff was entitled to allege causes of action to recover for unjust enrichment and in quantum meruit as alternative theories of relief”)).

As against the individual defendants, Justice Walsh dismissed this claim “because Plaintiff has not alleged that the individual defendants were parties to the contracts and that they were individually enriched by Plaintiffs loan of $237,000 to Avo to meet its payroll” (citing Auguston v. Spry, 282 A.D.2d 489 (2d Dep’t 2001)).

Constructive Trust

Dwyer alleged that prior to his termination, he had been held out as an Avo partner and, thus, had additional rights under law and equity. He alleged that the parties’ agreements evidence a trust relationship engendering fiduciary duties to preserve and protect his interests and that because Defendants breached that duty and unjustly enriched themselves, the Court must impress a constructive trust on Avo’s assets. But the Court dismissed this claim because Dwyer did not sufficiently allege a confidential or fiduciary relationship between himself and Defendants. Justice Walsh held that, at most, Plaintiff alleged an employer-employee relationship, “which does not involve a confidential or fiduciary relationship” (citing Budet v. Tiffany & Co., 155 A.D.2d 408 (2d Dep’t 1989) (“an employer owes an employee at will no fiduciary duty”) (citation omitted)).

Takeaway: Companies can’t have their cake and eat it too. If they want employees to take a stake in the business, they must treat them as investors. If, instead, they view them as mere “at will” employees and fire them without returning their investments, litigation will ensue.

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