On April 2, 2015, the First Department issued a decision in Kolchins v. Evolution Markets, Inc., 2015 NY Slip Op. 02863, addressing a motion to dismiss on documentary evidence.
In Kolchins, the plaintiff and his employer, a finance firm, had a three-year employment agreement beginning September 1, 2009, which provided for base compensation and a number of bonuses. In June 2012, as the contract term drew to an end, the defendant’s CEO sent plaintiff an e-mail stating: “The terms of our offer are the same terms of your existing contract (other than a clarification around the issue of departed members of your team), and include: 3-year term; $200,000 base salary; $750,000 sign on bonus . . . ; $750,000 per year minimum cash compensation; production bonus pool of 55% of net earnings of desk. Any further questions let me know but u do have your existing contract.” A month later, the plaintiff responded “I accept, pl send contract.”
Several days later, the defendant’s general counsel sent the plaintiff a draft employment agreement that contained the proposed terms but also made several substantive changes—providing for clawback of signing bonuses, and removing a provision concerning how total compensation for 2009 was to be calculated—that did not appear in the 2009 contract. After some dickering over e-mail, the plaintiff accepted the first change but would not accept the second, writing “This contract was presented to me as a mirror image of my last one. This doesn’t reflect that.” Although they continued to send comments back and forth, the parties did not reach an agreement over the disputed issues. By late August the parties had refused to agree to each other’s demands, the plaintiff writing, inter alia, “Is that how you were negotiating. Actually I don’t want to negotiate. I think we agreed to terms. It is clarifying some old language.” On September 1, 2012, the defendant informed the plaintiff that their employment agreement had expired, and that his employment was terminated as of that date. The plaintiff sued, alleging that the parties had extended the 2009 agreement and that he was entitled to breach of contract damages—bonus payments and severance payments that he was not given when the defendant took the position that his contract had expired.
The defendant moved to dismiss based on documentary evidence, attaching the e-mail correspondence described above to show that the parties had never agreed on the terms of a new contract. Justice Bransten of the New York County Commercial Division denied the motion, ruling that the e-mails were not “documentary evidence under CPLR 3211(a)(1),” and that in any event they did not “conclusively refute Plaintiff’s contention that the parties entered into a binding agreement” in July 2012. The defendant appealed.
In an opinion written by Justice Dianne Renwick, four of the justices on the panel affirmed. Justice Renwick first noted that e-mails of the type presented by defendant could constitute documentary evidence, citing previous First Department rulings. However, Justice Renwick did agree that the emails did not “utterly refute” the plaintiff’s claim. The plaintiff alleged that the e-mail from defendant’s CEO was an offer containing all material terms, and that plaintiff’s “I accept” e-mail accepted that offer, creating a new, enforceable agreement. The court found this to be a reasonable inference that could be drawn from the correspondence, and that subsequent e-mails where the parties disagreed over the terms of the new written agreement were insufficient to overcome that inference:
To overcome the reasonable inference we draw defendant must do more than merely point to the circumstances that a formal document was contemplated: defendant must show either that both parties understood that their correspondence was to be of no legal effect or that plaintiff had reason to know that defendant contemplated that no obligations should arise until a formal contract was executed.
But defendant has referred to no documentary evidence conclusively establishing either of those possibilities The mere fact that defendant often referred to the writing in progress as a draft is not dispositive here where other correspondence indicates that the parties may have had a different understanding. Indeed, on several occasions plaintiff expressed the view that he was not seeking to negotiate but that he was seeking either to clarify language or bring the language to conform with the parties actual performance under the 2009 Employment Agreement.
The majority rejected the defendant’s argument that the subsequent disputes conclusively proved that the parties had not agreed on all essential terms: “an agreement is still binding if a party has a change of heart between the time of agreeing to the terms of the agreement and the time those terms are reduced to writing.”
In dissent, Justice David Friedman agreed with all of the legal principles set forth by the majority, but would have found that the e-mail correspondence conclusively proved that there was no meeting of the minds because the parties were “consciously deadlocked” on “essential terms.” In his opinion, the majority improperly put disproportionate emphasis on the first e-mails, that subsequent emails where both plaintiff and defendant proposed changes to the terms of the 2009 agreement should have been given more weight, and that the majority should have followed other First Department cases where subsequent further negotiation established that the parties had not intended to be bound until a formal written agreement was reached.
This ruling shows not only that e-mail correspondence can be used as “documentary evidence” on a motion to dismiss, but also reinforces the point—also made in previous blog posts in the settlement context—that a written term sheet or even a handshake agreement can be enforceable unless it is specifically stated that no agreement will be binding until a final written document is signed.