Toll v. Tannenbaum
982 F. Supp. 2d 541
E.D. Pa.2013Background
- Toll, a longtime business partner/father-in-law of Tannenbaum, personally guaranteed $15 million in loans to Tannenbaum in May 2007; Toll claims this was in exchange for an oral promise that Tannenbaum would pay 50% of Fifth Street Management profits to Toll’s then-wife, Elizabeth.
- The alleged profit-sharing agreement was oral, never reduced to writing, and Toll says he first raised the issue publicly only in this litigation after the divorce between Elizabeth and Tannenbaum.
- Toll sued (diversity) asserting breach of contract, unjust enrichment, quantum meruit, promissory estoppel, and fraud; defendant moved for summary judgment on all counts.
- Court resolved a threshold choice-of-law question under Pennsylvania’s interest-analysis and concluded New York law governs the contract/quasi-contract issues because of competing state interests and the contacts of the parties.
- Applying New York law, the Court held the alleged oral, indefinite profit-sharing agreement is barred by New York’s one-year statute of frauds; quasi-contract remedies were unavailable because Toll sought the bargain (profit share) rather than the reasonable value of services and suffered no unjust enrichment-based injury.
- The fraud claim was dismissed under Pennsylvania’s two-year statute of limitations: Toll knew or, with reasonable diligence, could have discovered the alleged nonperformance more than two years before filing (discovery rule inapplicable).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Choice of law for contract dispute (NY v. PA) | Toll: Pennsylvania law should apply (would allow oral long-term contract) | Tannenbaum: New York law applies (would bar oral multi-year agreement under statute of frauds) | Court applied New York law based on contacts/interests and policy considerations |
| Validity/enforceability of alleged oral profit-sharing agreement | Toll: Oral May 2007 agreement to share 50% of management profits with Elizabeth is binding | Tannenbaum: No such enforceable agreement; even if alleged, NY statute of frauds bars it | Agreement void under NY statute of frauds (not performable within 1 year); breach claim dismissed |
| Quasi-contract remedies (unjust enrichment/quantum meruit) | Toll: In the alternative, equitable restitution for value of interest he would have had (90% figure) | Tannenbaum: Quasi-contract cannot circumvent statute of frauds; also would lead to double recovery/no unjust enrichment | Court denied quasi-contract claims: plaintiff sought benefit-of-the-bargain (not reasonable value of services), lacked expectation of personal compensation, and suffered no uncompensated loss |
| Fraud (fraudulent promise; discovery rule) | Toll: Fraud claim timely under discovery rule; he trusted family relationship and only discovered nonpayment later | Tannenbaum: Claim time-barred; plaintiff could have discovered earlier with reasonable diligence | Fraud claim barred by Pennsylvania two-year statute; discovery rule inapplicable because Toll could and should have inquired earlier |
Key Cases Cited
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941) (federal diversity court must apply forum state's choice-of-law rules)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (summary judgment standard for assessing genuine disputes of material fact)
- Am. Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575 (3d Cir. 2009) (summary judgment principles on genuine material fact disputes)
- Hammersmith v. TIG Ins. Co., 480 F.3d 220 (3d Cir. 2007) (describing Pennsylvania's interests/contacts approach to choice-of-law)
- Grappo v. Alitalia Linee Aeree Italiane, S.p.A., 56 F.3d 427 (2d Cir. 1995) (plaintiff cannot label a barred contract claim as quantum meruit to evade statute of frauds; quasi-contract may still permit recovery for reasonable value of services)