Plaintiff was working in the movie industry.  He and the movie company came to a parting, and a separation agreement was produced between him and the company, negotiated by the company’s CEO.  Later Plaintiff was not paid his equity investments and did not get certain credits.  Board is unhappy with the deal itself, and blames the attorneys hired by the CEO.

Morgan v Worldview Entertainment Holdings, Inc. 2017 NY Slip Op 31594(U) July 27, 2017 Supreme Court, New York County  Docket Number: 652323/2014 Judge: Eileen A. Rakower discusses apparent authority and whether the attorney may rely upon the CEO’s assurance that he has the power to initiate the agreement.

“Hoyt David Morgan (“Morgan”) commenced the first party action on July 28, 2014. The first party action arose from an alleged breach of an agreement entered between Morgan and Worldview Inc., on June 20,- 2013 (“the Separation Agreement”). The Separation Agreement identified the obligors of its terms as “Worldview Entertainment Holdings, Inc., its parents, successors, predecessors, divisions, affiliates, and assigns.” In the first party action, Morgan claimed that W orldview Inc. breached the terms of the Separation Agreement by failing to pay him for his non-recouped equity investments and provide him with Executive Producer credits on among other films, the film Birdman. Morgan also alleged that Holdings LLC, Partners VII, Conners, Cestone, and Sarah Johnson were jointly and severally liable to him for the alleged breach of the Separation Agreement as “affiliates” of Worldview, Inc. Specifically, Holdings LLC was alleged to “own 100% of the equity of Worldview Inc. and thus is its parent and affiliate.” Partners VII was alleged to be “a division and affiliate of Worldview Inc., being the investment vehicle specifically associated with the Worldview Inc. film Birdman.” Conners was alleged to be “an affiliate of Worldview Inc., as she owns a significant equity interest in Holdings, LLC, which in tum owns and controls Worldview Inc., and she controls Worldview Inc. as its Chief Executive Officer.” Cestone was alleged to be “an affiliate ofWorldview Inc., as she owns a significant equity interest in Holdings LLC, which in tum owns and controls Worldview Inc., and she controls Worldview Inc. as its co-founder and board member.” Defendants Holdings LLC, Partners VII, Conners, Cestone, and Johnson previously moved the Court to dismiss Morgan’s claims against them. They argued that they were not parties to the Separation Agreement and did not fall into the definition of “affiliates.” This Court denied their motions. The Appellate Division dismissed the tortious interference with·· contract claims as against the individual defendants, and otherwise affirmed the decision by order dated July 21, 2016. ”

“Third-Party Plaintiffs allege that “[t]he bylaws ofWorldview Inc. require that compensation provided to an officer of the corporation be fixed by its Board of Directors … or by the Chairman of the Board or the Chief Executive Officer (‘CEO’) acting under authority expressly delegated to such person by the Board of Directors.” They allege that “the Board of Directors did not give Woodrow authority to pay Morgan any additional compensation in connection with Worldview Inc.’s termination of Morgan’s employment” and “did not approve or authorize the Agreement at any time.” Third-Party Plaintiffs allege that the Goetz Third-Party Defendants breached the attorney-client duty and/or a fiduciary duty that they owed to them by “(i) failing to confirm whether the Board of Directors had approved or otherwise authorized Woodrow to enter into the Agreement; and (ii) violating the standard of care by negligently preparing the Agreement so as to allegedly make each of Holdings LLC, Partners VII and Conners an obligor under the Agreement, thereby potentially subjecting each of them to obligations that they were not otherwise required to undertake.” They allege that as a result of Goetz Third-Party Defendants’ breach, they have “(i) incurred and will continue to incur legal fees and expenses in connection with the defense of Morgan’s claims in this action; and (ii) may be subjected to liability to Morgan if it is determined that they are “affiliates” of Worldview Inc. and/or obligors under the Agreement.” They seek reimbursement of “(i) all of their legal fees and expenses incurred in connection with the defense of Morgan’s claims in this action; and (ii) any and all liabilities imposed upon any of the Third-Party Plaintiffs to Morgan as a result of any determination that they are ‘affiliates’ of Worldview Inc. and/or obligors under the Agreement.”

“The Goetz Third-Party Defendants argue that Based on Article 4, Section 2, of Worldview Inc.’ s bylaws, Woodrow was authorized to hire and terminate employees of the corporation and to sign contracts that would be binding on the corporation. They argue that the third-party allegations that board approval was required for the Separation Agreement is based on an inaccurate interpretation of Article 4, Section 10 of the Bylaws, which only states that “the compensation of all officers of the corporation shall be fixed by the board of directors.” They argue that the Third-Party Plaintiffs fail to explain how the Separation Agreement constitutes compensation that would trigger Article IV, Section 10 of the Bylaws. The Goetz Third-Party Defendants further argue that even if the Court were to accept Third Party Plaintiffs’ allegations that Woodrow’s acts with respect to the Separation Agreement were not authorized, Worldview Inc. should bear the risk of any loss arising from Woodrow, their then CEO, because they appointed him to act on its behalf. ”

“Third-party Plaintiffs and Cestone also allege that Boyajian acted negligently by drafting the Separation Agreement because it contained the language identifying its obligors as “Woodrow, its parents, successors, predecessors, divisions, affiliates and assigns.” Third-party Plaintiffs and Cestone fail to allege facts to substantiate how the inclusion of this provision is a deviation from the standard of care or negligent. While Third-Party Plaintiffs and Cestone argue that the provision may make them bound as obligors of the terms of the Separation Agreement, nowhere in the agreement does it specifically reference these parties or state that they are obligors. In fact, the Appellate Division January 30, 2015 decision stated, “The term ‘affiliates’ is not defined within the agreement, and neither its meaning, nor whether the parties intended for the individual defendants to be bound under the agreement, and neither its meaning, nor whether the parties intended for the individual defendants to be bound under the agreement, can be discerned on this pre-answer to dismiss.” Here, the mere use of the word “affiliate” in the Separation Agreement does not constitute negligence on Third-Party Defendants’ behalf – where at the time of making of the Separation Agreement – there was no apparent conflict between Worldview Inc. and the “affiliates” nor any allegation of such a conflict. “