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West v. IDT Corporation

2006 WL 1459971 (U.S. Dist. Ct. D. N.J. 2006)

EMPLOYER-EMPLOYEE; COMPENSATION — An employee is entitled to quantum meruit compensation when the employee, expecting to receive an employment agreement, commences work without having first reached an agreement as to pay and other forms of compensation and then quits or is fired.

A prospective employee met with the chief executive officer (CEO) of a corporation to discuss employment terms. At the meeting, each signed a hand-written employment document detailing the terms of employment, including terms related to the transfer of rights and businesses. Following a period of time during which the parties unsuccessfully to transfer the rights and businesses contemplated in the employment document, the corporation presented a draft of a performance based multi-year employment agreement. The prospective employee rejected it and was fired. The corporation had already paid the prospective employee for approximately six months of work.

The employee sued for more. Partial summary judgment was granted, leaving only the employee’s promissory estoppel and quantum meruit claim for trial. The jury rendered a verdict in favor of the corporation on the promissory estoppel claim and in favor of its employee on the quantum meruit claim. The corporation renewed a motion for judgment as a matter of law, or, in the alternative, for a new trial or a reduction of the jury award.

The District Court first explained that to recover under quantum meruit, a plaintiff must prove: (1) the performance of services in good faith; (2) the acceptance of the services by the person to whom they are rendered; (3) an expectation of compensation therefor; and (4) the reasonable value of the services. The Court then framed the issue in this case as a determination of whether the employee presented adequate, competent evidence for the jury to award the amount in damages for the reasonable value of the employee’s contribution and for his time and services.

The Court explained that the New Jersey Supreme Court had not definitively articulated standards for establishing damages in a quantum meruit action. The Court’s examination of case law indicated that quantum meruit damages should be determined by the reasonable value of services. It agreed with the employee’s assertion that business suggestions or bonuses could support recovery in quantum meruit. While the reasonable value of services could be shown by market value or actual expenses, the Court found the standards of proving the reasonable value of services more elusive. It reasoned that the reasonable value of the prospective employee’s services was appropriately measured by the fair market value of similar services. The Court also held that while damages need not be proven with precision where that is impractical, the New Jersey law abhors damages based on mere speculation. Thus, in a quantum meruit action, a plaintiff must provide competent evidence to enable a jury to intelligently and fairly to place a reasonable value upon the services claimed to have been rendered.

On the issue of the employee’s contribution to one of the corporation’s business projects, the employee argued that a jury could reasonably determine the amount of compensation for his contributions from the evidence of the corporation revenues and profit margins. Essentially, the prospective employee argued that his contributions, including his business acumen and strategy, enabled the corporation to profit from that particular project. The corporation responded that the prospective employee had only made an insignificant contribution, and that the corporation’s revenue stream for the project did not accurately reflect the value of the prospective employee’s contributions. Viewing the facts and inferences in the light most favorable to the prospective employee, the Court found that it was the prospective employee’s contributions that led to the corporation’s success with the project. The Court also recognized that business contributions could support recovery in quantum meruit, as long as the reasonable value of those suggestions was shown. This analysis left the remaining issue as to whether the evidence of the corporation’s revenue stream several years after the employee’s departure was adequate evidence upon which the jury could assess quantum meruit damages. The Court held that the evidence was not sufficient. On the issue of the reasonable value of employee’s time and services, the Court next addressed the issue of whether the prospective employee’s evidence was competent for the purposes of establishing quantum meruit damages. Namely, the Court considered the adequacy of: (1) bonuses set forth in the employment document; (2) statements regarding the value of the employee made by the corporation’s executives; (3) the employee’s background; and (4) the employee’s own testimony regarding how he valued his time and services.

As to the employment document, the Court noted, as a general matter, that an unenforceable agreement may be admitted for any purpose other than the enforcement of the agreement itself. The Court reasoned that the employment document was not probative of the reasonable value of the prospective employee’s services because the employee never provided a substantial portion of the value contemplated by the employment document. Therefore, the terms in the employment document for the employee’s bonus were not probative of the reasonable value of his services. Accordingly, the evidence was not adequate to support the jury award.

Similarly, the Court held that the evidence of statements of the corporation’s executives was not adequate to support the jury award. Those statements were derived from the hand-written employment document, which the Court already determined to be an inadequate measure of reasonable value. The Court held that evidence of the employee’s earlier compensation, stock ownership, and job offers was also irrelevant. It reasoned that the stock ownership and job offer indicated the value of equity in a company, something beyond the capability of a jury. Further, the Court reasoned that the employee did not provide evidence that the reasonable value of his services was more than his earlier compensation. Accordingly, it concluded that the evidence was inadequate to support the jury award.

Lastly, the Court considered the adequacy of the employee’s testimony as to what he discussed, wanted, required, expected, and did. Again, the Court reasoned that the prospective employee’s testimony derived from the employment document, a document which the Court held inadequate to establish quantum merit damages because of its link to assets that the employee never provided to the corporation.

Accordingly, the Court held that the jury was presented with no evidence upon which the reasonable value of the employee’s services could be “intelligently and fairly” determined and granted the corporation’s motion for judgment as a matter of law.

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