Pontius Ebel v. G/O Media, Inc.

Background

Katherine Pontius Ebel worked for the Onion beginning in 2011 and became its Chief Resource Officer and Chief of Staff in 2016. After the Onion was acquired by Great Hill Partners and combined with another media company to form G/O Media, Ebel’s relationship with the company deteriorated. She resigned on July 19, 2019.

Ebel’s employment agreement allowed her to resign for “Good Reason” after notifying the Onion of a qualifying reduction in her responsibilities and giving the company an opportunity to correct the problem. The agreement also provided for payment of her base salary for 12 months after a qualifying resignation. Ebel later sued G/O Media, the Onion, and James Spanfeller, alleging discrimination, retaliation, unequal pay, and denial of severance pay. The defendants denied those allegations.

The defendants filed three counterclaims against Ebel: breach of contract, breach of the duty of loyalty under the faithless-servant doctrine, and breach of the duty of care. They alleged that Ebel worked with former Onion executive Michael McAvoy to manufacture or improperly trigger a “Good Reason” resignation, failed to report receiving a privileged and confidential email, and acted against the companies’ interests.

Legal standard

The court evaluated the counterclaims under Rule 12(b)(6), which allows dismissal when a pleading does not allege enough facts to make a legally valid claim plausible. At this stage, the court treated well-pleaded factual allegations as true and drew reasonable inferences in the defendants’ favor, but it did not accept unsupported legal conclusions or speculation.

Breach of loyalty and faithless servant

The court treated the defendants’ breach-of-loyalty and faithless-servant theories as one claim. Under New York law, the faithless-servant doctrine can require an employee to forfeit compensation when the employee’s disloyal conduct is related to the employee’s duties and substantially permeates the employee’s service. The doctrine generally applies to conduct such as competing with the employer, diverting business opportunities, embezzling, or accepting improper payments.

The court held that the defendants’ allegations did not plausibly show disloyal conduct. Their allegations that Ebel and McAvoy “colluded” to create a basis for her resignation were conclusory, speculative, and inconsistent with the communications described in the pleadings. The allegations showed that Ebel complained about reduced authority and that McAvoy acknowledged her concerns, but they did not identify specific efforts by Ebel to prevent the company from correcting the problem.

The court also rejected the claim based on Ebel’s receipt of the privileged email. The defendants alleged that Ebel was within the company’s attorney-client privilege when she received it, and they did not identify a duty requiring her to report receiving it. The court further noted that the defendants’ counterclaims did not allege that Ebel used the email to support her resignation and that the defendants could not add that allegation for the first time in their opposition brief.

More fundamentally, the court held that even stronger allegations would not make Ebel’s alleged attempt to invoke the resignation provisions of her employment agreement the kind of direct disloyalty covered by the faithless-servant doctrine. The court therefore dismissed the counterclaim for breach of the duty of loyalty.

Breach of duty of care

The court also dismissed the counterclaim for breach of the duty of care. The defendants did not allege specific facts supporting that claim. Instead, they repeated that Ebel acted disloyally and against the companies’ interests. Because the court had found those allegations insufficient to support the loyalty claim, and because the duty-of-care claim relied on the same allegations, the court dismissed it as well.

Breach of contract

The defendants based their contract claim on a provision requiring Ebel to faithfully and diligently perform assigned services and follow the company’s rules, policies, orders, and directions. They argued that Ebel breached that provision by failing to report the privileged email, obstructing efforts to correct the alleged reduction in her duties, and improperly seeking to trigger the agreement’s resignation provisions.

The court held that the defendants had not plausibly alleged any of those breaches. They identified no rule or policy requiring Ebel to report receiving the email, and they alleged no facts showing that she obstructed efforts to restore her duties. The contract claim also depended on the rejected allegations that Ebel acted disloyally or breached fiduciary duties. The court therefore dismissed the breach-of-contract counterclaim.

Disposition

The court granted Ebel’s motion to dismiss the defendants’ counterclaims. It directed the Clerk of Court to terminate the motion at docket 34. The opinion did not add a “with prejudice” or “without prejudice” qualifier.