Sobel v. Major Energy Services, LLC

Background

David Sobel sued Major Energy Services, LLC and Spark Energy, LLC in a diversity action. He asserted breach of contract, unjust enrichment, and breach of the implied covenant of good faith and fair dealing under New York law. The dispute concerns an annual bonus connected to Sobel’s employment as Chief Financial Officer of Major Energy.

A January 30, 2017 letter agreement stated that Sobel could participate in Spark Energy’s annual bonus program, with a target bonus of 50% of his base salary. It also stated that the bonus was discretionary and that Sobel had to be an active employee at the time of any payout. Sobel signed the agreement on February 2, 2017.

Sobel alleged that in March 2019, company officials told him that the defendants had exercised their discretion to award him 80% of his target bonus, approximately $104,800. He further alleged that a company official confirmed that he had earned the bonus, that the bonus was being released, and that the human resources department gave him a Federal Express tracking number for a parcel that presumably contained his bonus check. Sobel’s employment was terminated on April 16, 2019, and he never received the bonus.

Procedural History

The complaint was initially filed in New York state court and then removed to federal court. The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not adequately state a legal claim. Magistrate Judge Debra Freeman recommended denying the motion in its entirety. The defendants objected and argued that all of Sobel’s claims should be dismissed.

Breach of Contract

The defendants argued that Sobel could not state a contract claim for two reasons. First, they contended that “at the time of any payout” meant when Sobel actually received the money. Because his employment ended before he received the bonus, they argued that he was not eligible. Second, they argued that the bonus’s discretionary nature meant that Sobel had no enforceable right to payment.

The court rejected dismissal based on the active-employee language. It agreed that the phrase “at the time of any payout” was ambiguous, meaning it could reasonably have more than one interpretation. The phrase could refer to when funds were released, when a check was signed, when a check was mailed, when the payment was received, or when Spark Energy issued bonuses generally. Because Sobel alleged that the bonus had been approved and was being delivered while he was still an active employee, his contract claim was plausible at the pleading stage.

The court also rejected dismissal based on the word “discretionary.” Under New York law, an employee generally cannot recover a bonus when the employer has absolute discretion over whether to pay it, but that discretion must be stated unambiguously in the contract. Sobel alleged that the defendants had already exercised their discretion by awarding him a specific bonus and sending it to him. The court therefore concluded that the discretionary language did not necessarily defeat his contract claim under the unusual facts alleged.

Unjust Enrichment

Unjust enrichment is a claim seeking restitution when one party received a benefit at another’s expense and fairness requires repayment. The defendants argued that Sobel’s written employment agreement prevented this claim because it concerned the same subject as his contract claim.

The court declined to dismiss the claim. The record was unclear about whether the employment agreement was with Major Energy, Spark Energy, or both. The letter was addressed to Sobel concerning his position with Major Energy, signed by Spark Energy’s president and chief executive officer on behalf of Major Energy, printed on Spark Energy letterhead, and referred to both companies’ employment and bonus arrangements. If one defendant was not a signatory, the contract might not govern Sobel’s right to payment against that defendant. The court also noted a dispute about the scope or enforceability of Sobel’s alleged contractual right to the bonus. It therefore found dismissal premature.

Implied Covenant of Good Faith and Fair Dealing

The implied covenant of good faith and fair dealing is a promise included in every contract that the parties will not act to defeat the contract’s benefits. The defendants argued that this claim duplicated Sobel’s contract claim because both sought $104,800.

The court disagreed that the claims were duplicative at this stage. Sobel’s contract claim was based on the allegation that the defendants failed to perform the employment agreement by not paying the bonus. His implied-covenant claim was based on the different allegation that the defendants acted arbitrarily or in bad faith after telling him that they had awarded and sent the bonus. Although Sobel could not obtain double recovery for the same injury, the court held that he could plead both claims while the case proceeded.

Disposition

Judge Gardephe adopted Judge Freeman’s Report and Recommendation in its entirety and denied the defendants’ motion to dismiss. The order denied dismissal of all three claims: breach of contract, unjust enrichment, and breach of the implied covenant of good faith and fair dealing.