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2nd Circuit Upholds Vermont District Court’s Award of Quantum Meruit Damages to Man Who Worked in His Former Same-Sex Partner’s Business Without Salary During Their Relationship

Posted on: January 1st, 2017 by Art Leonard No Comments

Ruling in Cressy v. Proctor, 2016 U.S. App. LEXIS 21973, 2016 WL 7195814 (Dec. 12, 2016), the 2nd Circuit found that U.S. District Judge William K. Sessions III (D. Vt.) did not abuse his discretion in awarding equitable relief on the theory of quantum meruit to Ronald Cressy, who had worked for many years in his partner Kevin Proctor’s business without formal compensation, and who sought payment after the men’s relationship ended, or in rejecting Proctor’s equitable defenses to the claim, including that Proctor was providing Cressy’s only means of support during the relevant time period.  The court also concluded that Judge Sessions’ award of $173,685 on the claim was not clearly erroneous.  The opinion for the circuit court was by E.D.N.Y. Judge Nicholas G. Garaufis, who sat by designation as part of the 2nd Circuit panel.

Judge Garaufis’s opinion omitted any detailed recitation of facts, but they can be found in Judge Sessions’ opinion, 2015 WL 4665533 (D. Vt., Aug. 6, 2015). Proctor began his business, Synergy Advertising, in Long Beach, California, in 1990 as a sole proprietorship, following a successful career in the advertising business, with one primary client. At its height, the business had five employees, although the staff fluctuated in size.  The business operated at first out of Proctor’s den, then out of an office in his garage.  Before meeting Proctor, Cressy, who was married to a woman, worked for a women’s clothing company as a manager, eventually attaining an annual salary of more than $90,000.  Cressy’s married ended when he came out as gay and his wife filed for divorce in 1993.  During that process, Cressy cashed out his retirement savings and paid off debts, being left with a small amount of cash which he used to pay for some of his personal expenses during his courtship with Proctor, which led to a romantic relationship in 1993, when Cressy moved into Proctor’s house and took paid mental health leave from his employer.  He subsequently quit his job and took time off to recuperate.  At that point, Proctor owned his business, his home (without a mortgage), and a collection of antiques, and had substantial personal savings.

The men’s relationship continued for almost two decades. They considered themselves domestic partners. Proctor supported Cressy financially throughout the relationship.  Cressy began working in Proctor’s business on a part-time basis, but over time his responsibilities increased and he eventually took over the responsibilities of a paid employee who left the business.  The paid employee had been earning $40,000.  After that employee left, a neighbor who was working part-time and Cressy were the only employees aside from Proctor in the business, and eventually the part-timer cut back substantially.  In 1996, Proctor decided to relocate to Vermont.  Proctor claimed that Cressy begged him to take him to Vermont, but the court found that Proctor always intended to take Cressy with him, and involved Cressy in the selection of their new home over an 18 month period during which they traveled to New England together.  Proctor decided to buy a farm in Ryegate, Vermont, using the proceeds from sale of his Long Beach house, personal savings, and profits from his business.  Cressy made no financial contribution to the purchase and his name is not on the deed.  Only Proctor signed the sales documents and was present at closing. The court found Cressy’s testimony that Proctor promised to put Cressy’s name on the deed as not credible.  They moved to the farm over Labor Day weekend in 1998, prior to which they disposed of “a significant amount of Synergy records.”  A home office in the farmhouse contained the remaining business records.  Proctor eventually bought six additional adjoining properties over the next three years, but Cressy was not on the title for any of those purchases and did not contribute to them.  Judge Sessions found that whatever he said to Cressy about the properties beings “ours,” Proctor never intended to give Cressy a half interest in them as Cressy alleged.  All the properties together had an assessed value of nearly a million dollars, and at trial Cressy’s real estate expert testified they were worth $1.5 million.  Cressy helped with farm chores together with Proctor.  Eventually Cressy moved the Synergy records to another building, which subsequently burned down, so at the time of trial there were no business records to confirm testimony about Cressy’s role in the business.

The business continued for some time after the move, becoming mainly an on-line business. Proctor’s father became ill and moved to the property, with Proctor taking primary responsibility for his care and Cressy taking over more responsibility for operating the business, in approximately 2004.  By 2008, Proctor wound down the business and they lived off Proctor’s savings and remaining funds from the business.  By 2012, “these reserves were depleted and Proctor asked Cressy to pay for some household bills out of his own savings.  Shortly after, Cressy left Ryegate and their relationship ended after nineteen years of cohabitation.”  Judge Sessions found that Proctor’s total assets “are worth well over $1 million,” and that “a substantial portion of Proctor’s personal and real property were purchased with Synergy funds.  When Cressy left he had less than $500 in his bank account and no other assets.”

During the course of their relationship, the men never took any steps to formalize their relationship in a civil union, which they could have done in Vermont after the civil union law was enacted. They never registered as domestic partners, as they could have done in California before they moved to Vermont.  They never adopted wills or trusts designating the other as a trustee or beneficiary.  Even after same-sex marriage became legal in Vermont, they did not marry, although Cressy proposed that to Proctor.  “Proctor did make Cressy the beneficiary of a small IRA when Cressy told Proctor that he was feeling insecure about his financial position,” wrote Sessions, “but this was the only time Proctor made any provision for Cressy.”  Since Cressy moved out, Proctor took out a home equity loan to supplement his savings and cover living expenses.  Cressy, who lives with his parents in California, works part-time in a travel agency.

Judge Sessions found that Cressy worked full-time for many years in Proctor’s business without pay, despite Proctor’s claim that Cressy was only part-time and a volunteer who did not expect compensation. In the absence of the destroyed records, this conclusion rested on testimony from family members and former co-workers.  Proctor claimed that Cressy’s work was in exchange for his room and board and expenses all being covered by Proctor for the duration of their relationship.  Although Cressy testified that “he was glad to help Proctor out and it was a ‘natural thing’ for him to help out with his ‘partner’s business,” Sessions found that “by the time he became a full-time employee, however, it was understandable that he expected to receive some benefit for his labor other than room and board,” but that he never received any direct compensation for his work in the business.

Wrote Sessions, “the court is persuaded that, regardless of the reason why, Cressy contributed a significant amount of labor to Synergy without pay and with a reasonable expectation that he was building something with Proctor for their mutual benefit. Even though Cressy was in a precarious financial situation, he never confronted Proctor to insist that he be paid or to disrupt his assumption that the business would ultimately be shared because of Proctor’s ‘very strong personality.’  Cressy, more timid and quiet, tended to avoid confrontation.  While Cressy might have spared himself some surprise and disappointment by confronting Proctor earlier and clarifying whether Proctor had the same expectations, it appears to be consistent with the nature of their relationship for Cressy to defer to Proctor and avoid raising potentially controversial topics.”  The court also found that Proctor’s antique collection, which predated the relationship, continued to grow as they invested Synergy funds and went antiquing together.  Cressy testified that Proctor told him that “these are our retirement.”  They intended to start an antique business and Proctor got a resale license from the state of Vermont so he could acquire antiques without paying sales tax, but the business never got started.

While Judge Sessions found that these facts would not support Cressy’s claim that the men had an implied contract under which he had an ownership share in the business and property and thus was entitled to be compensated on that basis, and that the lack of express promises by Proctor undermined Cressy’s claim under a theory of “promissory estoppel,” he decided that Cressy’s alternative quantum meruit claim was substantiated. Sessions found that “the professional aspect of the relationship is, in this case, entirely severable from the domestic aspects of the relationship.”  He found that Cressy’s household contributions cannot form the basis of equitable claims, because services between living-together partners are not compensable but just part of their relationship.  On the other hand, he found that services in the business should be compensable, and rejected Proctor’s argument that “Cressy’s work should be presumed to have been performed gratuitously.”  Sessions credited Cressy’s testimony that he considered what he was doing in the business as his contribution towards a joint investment in their future.

Sessions found the equities sufficiently in Cressy’s favor to determine that he should be paid for the reasonable value of the services he provided in the business, and decided to calculate those with reference to the salary of the full-time employee in California whose work Cressy had taken over when she left the business, $40,000 a year. On the other hand, he rejected Proctor’s argument that offset against this should be the significant amount he spent on trips, clothes, and other personal expenses for Cressy, finding that “there can be no claim for household services between domestic partners.” Ultimately, he performed a calculation, following the suggestions of Cressy’s economic expert witness, the concluded that “the present value of Cressy’s lost annual savings, including interest, added up to $173,685.  He rejected various equitable defenses by Proctor, including the failure of Cressy ever to demand compensation while he was working in the business and Cressy’s enjoyment of living tax free all those years by not receiving a salary.  Sessions also rejected an argument that Cressy should be estopped from asserting these claims after having left the relationship.  “Cressy is not estopped from bringing his quantum meruit claim now because he had no notice that Proctor did not actually consider him a partner until after their personal relationship ended,” wrote Sessions.  “Neither Cressy nor Proctor sought outside work after the close of Synergy and the domestic life of the parties after 2008 is not relevant to Cressy’s quantum meruit claim,” he continued.  The court also rejected Proctor’s attempt to assert a counterclaim for the value of the room, board, clothing, travel expenses, health insurance, recreational expenses and other sundry goods, services and provisions, as to which Proctor sought restitution, having concluded that these were considered gratuitous within the personal relationship of the two men.

In finding that Sessions did not abuse his discretion in reaching these conclusions, Judge Garaufis wrote, “The court heard conflicting testimony regarding the materiality of Cressy’s labor at Synergy, and, in its role as fact finder at a bench trial, resolved these factual conflicts with its findings that Cressy was a full-time employee with administrative and clerical responsibilities who ran the day-to-day operations of the company. The evidence adduced at trial permitted this interpretation.  It was not clear error for the district court to find that Cressy’s labor rendered a material benefit to Proctor.”  The 2nd Circuit upheld Sessions’ finding that one could separate out the personal and the professional in the relationship, and treat the benefits Cressy enjoyed from Proctor’s support of his “lifestyle” during their relationship as completely apart from the value Proctor derived from Cressy’s work in the business.  “As Proctor’s domestic partner,” wrote Garaufis, “Cressy would have expected to enjoy these sorts of lifestyle benefits, regardless of whether he contributed to Proctor’s business.  By contrast, Cressy’s labor as a full-time employee of Synergy was not within the scope of the normal exchange of domestic benefits; Proctor could not have reasonably expected to enjoy the benefits of Cressy’s labor as a matter of course by virtue of the fact of their relationship alone.”  The court cited to a Vermont Supreme Court case, Harman v. Rogers, 510 A.2d 161 (1986), which reached a similar conclusion regarding an unmarried couple, “one of whom ran the day-to-day operations of a business owned by the other and was not compensated.”  Cressy lives in California and sued Proctor in Vermont under diversity jurisdiction, so Vermont law on these questions is controlling.

The 2nd Circuit panel also saw no “clear error” in Sessions’ calculation of damages, finding that the evidence presented at trial provided a sufficient basis for Sessions’ conclusions. The court also rejected Proctor’s argument that it was “clear error” for Sessions to fail to credit Proctor in this calculation for the value of his support for Cressy’s lifestyle expenses during the relationship.

Cressy was represented in the litigation by Cevin McLaughlin of the Middlebury firm of Langrock, Sperry & Wool LLP. Proctor was represented at trial by Richard Thomas Cassidy of the Burlington firm Hoff Curtis.  Mark Scherzer of New York brought Proctor’s appeal to the 2nd Circuit.