Xue v. Koenig

Background

Feng Xue and Calculus Trading Technology, LLC sued Stewart Koenig and Prime Consulting International, LLC over alleged unpaid wages under the Fair Labor Standards Act, a federal wage law, and New York and New Jersey labor laws. Defendants responded with counterclaims for breach of contract, declaratory judgment, promissory estoppel, and tortious interference with contract.

The motion addressed only Defendants’ breach-of-contract claim, Count One, and declaratory-judgment claim, Count Four. Those claims relied on three agreements: an Indemnification Agreement, a Noncompetition Agreement, and a Consulting Agreement. Plaintiffs moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c), which uses the same standard as a motion to dismiss for failure to state a claim. At this stage, the court accepts well-pleaded factual allegations as true and asks whether they plausibly support relief.

Indemnification Agreement

Plaintiffs argued that the Indemnification Agreement was invalid as against public policy because it could require Calculus to indemnify Prime Consulting International for obligations arising from alleged wage-law violations. They also argued that Defendants had not alleged recoverable damages because the only apparent damages were attorneys’ fees.

The court held that deciding the public-policy issue was premature. Federal wage law does not allow an employer found liable under that law to obtain contribution or indemnification, but the parties disputed whether Defendants were Xue’s employer. The court therefore declined to determine at the pleading stage whether the agreement was invalid on that basis.

The court agreed that Defendants had not plausibly alleged damages under the Indemnification Agreement other than attorneys’ fees. It explained that New York law strictly construes indemnification provisions and generally requires unmistakably clear language before shifting attorneys’ fees incurred in litigation between contracting parties. The court did not finally decide whether the agreement covered attorneys’ fees connected to Xue’s claims, because Xue was alleged to be a third party to the agreement and Plaintiffs had not specifically addressed that issue.

The motion was therefore denied as premature as to the breach-of-contract and declaratory-judgment claims based on the Indemnification Agreement.

Noncompetition Agreement

The Noncompetition Agreement barred Calculus and its employees from soliciting or providing similar services directly or indirectly to Prime Consulting International’s customers during the engagement and for one year afterward. The agreement was dated June 25, 2005, but it was unsigned. Defendants alleged that Xue repeatedly represented that Calculus would honor the agreement and that Plaintiffs breached it by inducing Prime Consulting International’s client, Cowen, to end its relationship with Prime Consulting International and hire Xue.

Plaintiffs argued that the agreement was unenforceable under New York’s Statute of Frauds because it could not be performed within one year and lacked a signature. Defendants argued that the parties’ conduct showed acceptance and that further factual development might establish part performance.

The court rejected that argument. It held that the part-performance exception does not apply to this type of agreement under the relevant New York statute. Defendants also did not identify a signed document authenticating the agreement or showing its terms. The court further concluded that promissory or equitable estoppel did not save the claim because the alleged lost placement fees and lost profits did not constitute the required unconscionable injury and loss.

The motion was granted to the extent it sought dismissal of the breach-of-contract and declaratory-judgment claims based on the Noncompetition Agreement. Those claims were dismissed with prejudice to that extent.

Consulting Agreement

The Consulting Agreement stated that it would continue from July 1, 2009, through June 30, 2010, and could be ended by either party without cause on 10 days’ written notice. Defendants did not clearly identify which provision was breached. They appeared to rely on indemnification provisions and argued that the parties’ conduct showed mutual agreement to continue under the same terms after the written agreement expired.

The court explained that an implied-in-fact contract requires the same basic elements as an express contract, including consideration and mutual assent. The counterclaims alleged only, in conclusory terms, that Xue repeatedly represented that Calculus accepted and would follow the Consulting Agreement. The court found those allegations too vague to adequately plead a continuing implied agreement.

The motion was granted as to the breach-of-contract and declaratory-judgment claims based on the Consulting Agreement. Those claims were dismissed without prejudice, and Defendants were given leave to allege more details supporting an implied-in-fact consulting agreement.

Disposition

Judge Nelson S. Roman concluded that Plaintiffs’ motion for judgment on the pleadings concerning Defendants’ counterclaims was denied in part and granted in part. Counts One and Four were dismissed with prejudice to the extent based on the Noncompetition Agreement, dismissed without prejudice to the extent based on the Consulting Agreement, and not dismissed because the motion was premature to the extent based on the Indemnification Agreement. Defendants were allowed to file amended counterclaims by April 12, 2021. The court directed the Clerk to terminate the motion at ECF No. 34.