Posts tagged with "New York law"

Where the Grantors Intend a Trust to be Modified Jointly, A Surviving Grantor May Not Make Unilateral Modifications After the Death of the Co-Grantor

Whitehouse v. Gahn, 84 A.D.3d 949  (N.Y. App. Div. 2011)

In a case before the Appellate Division of the Supreme Court of New York, a trust beneficiary appealed a New York Supreme Court decision that declared the trust amendment naming her as sole beneficiary to be void and unenforceable.  The Appellate Division affirmed the lower court ruling and remitted the case for an entry of judgment.

Case Details

In their lifetimes, the mother and father, as grantors, established an irrevocable trust naming their three children as the beneficiaries of the trust estate, which consisted of the family home.  The trust instrument expressly reserved for the grantors a limited power of appointment to change or alter the remaindermen.  Approximately five months after the father died, the mother executed an amendment to the trust, naming the daughter as its sole beneficiary.

Less than one month after the amendment was executed, the mother died.  The two children who were removed as trust beneficiaries sought a declaratory judgment in the Supreme Court to declare the amendment void and unenforceable.  The court decided in their favor, and the daughter who had been named sole beneficiary appealed the decision.

Unambiguous Language in a Trust

According to New York case law, a trust instrument is to be construed as written and the grantor’s intent is to be determined solely from the unambiguous language of the trust instrument itself. Mercury Bay Boating Club v. San Diego Yacht Club, 557 N.E.2d 87 (N.Y. App. Ct. 1990); see Matter of Wallens, 877 N.E.2d 960 (N.Y. App. Ct. 2007); Matter of Chase Manhattan Bank, 846 N.E.2d 806 (N.Y. App. Ct. 2006).  The Appellate Division found that the terms of this trust instrument were unambiguous, and clearly expressed the grantors’ intent that their three children share the trust estate equally.

These unambiguous terms may not be altered by a separate provision of the trust which may allow the plural usage of “grantors” to be interpreted as a singular “grantor.”  The Appellate Division held that because the trust agreement allowed an amendment to be made with the joint consent of the grantors, a surviving grantor may not unilaterally amend the trust after the death of the co-grantor.  Therefore, because only the mother executed the amendment to the trust, it was void and unenforceable.

The Court’s Decision

New York law permits a court to amend an irrevocable, unamendable trust if its grantor and all the beneficiaries consent to the amendment.  N.Y.  Estates, Powers and Trusts Law § 7-19.  Because that did not happen in this case, the Appellate Division found further reason to determine that the purported amendment was void and unenforceable.

The Appellate Division of the Supreme Court remitted the matter to the Supreme Court where it originated for entry of judgment declaring that the amendment to the trust was void and unenforceable, and that all three children were beneficiaries of that trust.


Should you have any questions relating to trusts, estate planning or personal asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.

Several Different Legal Theories May Allow Creditors To Reach a Debtor’s Assets Held in Trust

United States v. Evseroff, 00-CV-06029 KAM, 2012 WL 1514860 (E.D.N.Y. Apr. 30, 2012)

In a case before the United States District Court for the Eastern District of New York, the United States government sought to collect delinquent taxes by accessing assets held in a trust established for the benefit of the taxpayer’s children. The current case was remanded to the District Court by the United States Court of Appeals for the Second Circuit after the Second Circuit reversed an earlier District Court ruling on the same matter. On remand, the District Court ruled that the government may collect against all assets held by the trust.

Case Background

Between 1978 and 1982, the taxpayer invested in a series of tax shelters that generated deductions that were later disallowed by the Internal Revenue Service (IRS).  In December 1990, after being audited, the taxpayer received notification that he owed over $227,000 in taxes and penalties.  This amount was later corrected.

In January 1992, the taxpayer received a notice of deficiency indicating that he had accrued more than $700,000 in tax liability.  The taxpayer challenged the IRS calculation of his tax liability in a petition to the United States Tax Court.  In November 1992, the Tax Court entered judgment against the taxpayer in the amount of $209,113 in taxes and penalties, and $560,000 in interest.

In June 1992, the taxpayer established a trust, naming a series of family friend and business associates as the trustees and naming his two sons as the beneficiaries.  That same month, he transferred approximately $220,000 to the trust and in October 1992 he transferred his primary residence, valued at $515,000, to the trust.  The taxpayer received no consideration and there was no evidence the trust assumed the individual taxpayer’s mortgage obligations.

Pursuant to the transfer agreement, the taxpayer was allowed to live in the residence and was responsible for the expenses of the residence, including the mortgage and property taxes.  At the time of the transfer, the mortgage was scheduled to be paid off in five years; however, the transfer agreement did not specify an end date for the taxpayer’s occupancy.

The Trial

At the bench trial held in 2005, the government advanced several theories for recovering assets from the trust, all of which were rejected by the District Court. The government appealed.  In 2008, the United States Court of Appeals for the Second Circuit reversed the judgment and remanded the case.  In its remand order, the Second Circuit directed the District Court to reconsider its findings with respect to whether the conveyances by the taxpayer to the trust were actually fraudulent, whether the trust held property as the taxpayer’s nominee and whether the trust was the taxpayer’s alter ego.

Fraudulent Conveyance

According to New York law, every conveyance made with “actual intent, as distinguished from intent presumed in law, to hinder, delay or defraud” one’s creditors is fraudulent as to both present and future creditors.  N.Y. Debtor and Creditor Law § 276.  The primary issue is the intent of the debtor in making the conveyance, not the actual financial status of the debtor at the time of the conveyance.  The requisite intent required by this section does not need to be proven by direct evidence; it may be inferred from circumstances surrounding the allegedly fraudulent transfer.

Factors, known as “badges of fraud,” that a court may consider in determining fraudulent intent include: lack or inadequacy of consideration; close relationship between the transferor and the transferee; debtor’s retaining possession, benefit or use of the property; series of transactions after incurring the debt; the transferor’s knowledge of the creditor’s claim and the inability to pay it; the financial condition of the debtor before and after the transfer; and the shifting of assets to a corporation wholly owned by the debtor.  

See Steinberg v. Levine, 6 A.D.3d 620 (N.Y. 2004); In re Kaiser, 722 F.2d 1574, 1582–83 (2d Cir.1983) (citations omitted).  To support a fraudulent conveyance finding, the creditor must have suffered some actual harm; however, actual harm may be found if the debtor depletes or diminishes the value of the assets of the debtor’s estate available to the creditors.  Lippe v. Bairnco Corp., 249 F.Supp.2d 357, 375 (S.D.N.Y. 2003)

Tax Liability

The District Court found that the taxpayer was well aware of his tax liabilities and other potential demands on his assets when he transferred his residence and $220,000 to the trust in 1992.  Evidence of the taxpayer’s conduct at the time of the transfers supported the court’s finding that the taxpayer acted with the intention to hinder or delay collection of his assets. The taxpayer retained the benefits of ownership of the residence after it was transferred to the trust for no consideration.

His payments of mortgage and other property-related expenses, in lieu of rent, were the type of payments that would be made by a property owner, not a renter.  Much of the taxpayer’s net worth consisted of cash, which he was continually transferring among bank accounts held by family and close associates, as well as withdrawing to hold in an office safe. These transfers and withdrawals made it difficult for the IRS to locate and value the taxpayer’s assets.

Causing Harm to Creditors

The District Court also found that the transfers of cash and real estate to the trust unambiguously caused the requisite actual harm to his creditors by reducing the assets that the taxpayer had available to satisfy his tax debt and reducing the value of his readily accessible assets well below the amount of his tax debt.  After the transfers, the IRS would have had to collect between fifty and ninety percent of his remaining assets to satisfy his tax debt.

As a result of this analysis, the District Court found that the taxpayer’s intent to evade the IRS collection efforts was substantial and sufficient on its own; therefore, the court concluded that the taxpayer’s transfer of the residence and $220,000 to the trusts was actually fraudulent within the definition of New York law.  The remedy for fraudulent conveyance is that the creditor may collect upon the fraudulently conveyed property.  Therefore, the District Court held that the government may collect against the assets in the trust on this basis.

The Nominee Theory

The nominee theory focuses on the relationship between the taxpayer and the property to determine whether a taxpayer has engaged in a legal fiction, for federal tax purposes, by placing legal title to property in the hands of another while, in actuality, retaining all or some of the benefits of being the property’s true owner. Richards v. United States, 231 B.R. 571, 578 (E.D.Pa.1999).  The overall objective of the nominee analysis is to determine whether the debtor retained the practical benefits of ownership while transferring legal title.  Id. The critical consideration is whether the taxpayer exercised active or substantial control over the property.

Factors examined by the court include: (1) whether inadequate or no consideration was paid by the nominee; (2) whether the property was placed in the nominee’s name in anticipation of a liability while the transferor remains in control of the property; (3) where there is a close relationship between the nominee and the transferor; (4) whether they failed to record the conveyance; (5) whether the transferor retains possession; and (6) whether the transferor continues to enjoy the benefits of the transferred property.  

Giardino v. United States, No. 96–CV–6348T, 1997 WL 1038197, at *2 (W.D.N.Y. Oct.29, 1997).  A nominee finding can be made even where there is no intent to defraud creditors or hinder collection efforts.  Where a nominee relationship is found, the government may access only the property held on the taxpayer’s behalf by the nominee and not all the property of the nominee.

The Taxpayer’s Payments

The District Court found that the trust was the taxpayer’s nominee with respect to the residence only, and not with respect to the $220,000. The taxpayer had a close relationship with the trustees and the trust paid no consideration for the transfer of the residence. There was no evidence in the transfer agreement that the trust prevented the taxpayer from benefitting from the use and occupancy of the residence as much as when he held legal title to it.

The District Court found the evidence that the taxpayer made some payments relating to the property to be insufficient evidence to rebut the inference that he was the de facto owner of the property.  The payments that the taxpayer made in exchange for his occupancy were precisely those that an owner would make.  Once the mortgage was paid off, the taxpayer was only responsible for upkeep and expenses for the property; therefore, the trust received no net return from this asset.

The District Court considered that, were the trust acting as the owner of the property, it would have sought market rental rates that would have exceeded the taxpayer’s payments.  Therefore, the District Court found that the trust held the residence as the taxpayer’s nominee and that the government could recover the taxpayer’s debts against the residence under a nominee theory.

The Alter Ego Theory

The alter ego theory differs from the nominee theory because the nominee theory focuses on the taxpayer’s control over and benefit from the actual property, while the alter ego theory emphasizes the taxpayer’s control over the entity that holds the property.  The alter ego doctrine arose from the law of corporations and allows the creditor to disregard the corporate form (also known as “piercing the corporate veil”) by either using an individual owner’s assets to satisfy a corporation’s debts or using the corporation’s assets to satisfy the individual owner’s debts.

Although the New York Court of Appeals has never held that the alter ego theory may be applied to reach assets held in trust, the District Court found no policy reason not to extend the application of veil piercing to trusts.  The policy behind piercing the corporate veil is to prevent a debtor from using the corporate form to unjustly avoid liability, which applies equally to trusts.  Therefore, the District Court held that the alter ego theory could be applied to the trust in the instant case.

Piercing the Corporate Veil

To pierce the corporate veil in New York, a plaintiff must show that “(1) the owner exercised such control that the corporation has become a mere instrumentality of the owner, who is the real actor; (2) the owner used this control to commit a fraud or ‘other wrong’; and (3) the fraud or wrong results in an unjust loss or injury to the plaintiff.” Babitt v. Vebeliunas,332 F.3d 85, 91–92 (2d Cir.2003) (citations omitted); see also Wm. Passalacqua Builders, Inc. v. Resnick Developers S. Inc., 933 F.2d 131, 138 (2d Cir.1991).  With respect to analyzing the taxpayer’s control over the trust, the relevant factors can be drawn by analogy from the corporate context.

In analyzing the alter ego question as it relates to a corporation, courts consider factors such as the absence of formalities, the amount of business discretion displayed by the allegedly dominated corporation, whether the related corporations deal with the dominated corporation at arm’s length and whether the corporation in question had property that was used by other of the corporations as if it were its own. Vebeliunas,332 F.3d  at 91 n.3 (citation omitted).

The District Court’s Findings

The District Court found that the trust was an alter ego of the taxpayer.  The trust formalities were so poorly observed as to give rise to the inference that the trust was not a bona fide independent entity. Between 1992 and 1998, the trust did not record the taxpayer’s payment of expenses for the residence as income and, during this period, the trust did not claim the mortgage interest deduction for the residence.  The individual taxpayer remained as the named beneficiary of the flood and fire insurance policies of the residence.

The accounting work for the trust was performed by a business associate of the taxpayer as a professional courtesy.  The trust tax statements were sent directly to the taxpayer instead of to the trustees. The District Court also found that the manner in which the trust was managed also demonstrate that it was an extension of the taxpayer because there was little evidence that the trustees were actively involved in managing the trust or its assets.

Having trustees play an active role in managing the trust is an important factor in deciding whether to respect the form of a trust because active involvement of trustees would support the separate existence of a trust. Dean v. United States, 987 F.Supp. 1160, 1165 (W.D.Mo.1997).  Finally, the taxpayer demonstrated his domination of the trust by controlling its property to a high degree.

The Court’s Decision

Once the District Court found that the taxpayer controlled the trust, the next steps were to determine whether he used that control to commit a fraud or a wrong against the government, in its capacity as a creditor, and whether that wrong resulted in an unjust loss.  The court found these elements to be plainly satisfied by the facts and its previous findings with respect to actual fraudulent conveyance and the nominee doctrine.

Therefore, the District Court concluded that the existence of the trust as a separate entity was a legal fiction. Under the alter ego theory, the government may collect against all assets held by the trust as if they were held by the taxpayer himself.

Therefore, the District Court held that the government may proceed to collect against all the assets held by the trust that the taxpayer established for benefit of his sons in order to satisfy his delinquent tax liabilities.


Should you have any questions relating to trusts and other personal asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.

Trustees May Be Liable in their Own Person and Estate for Failure to Comply with IRS Notices of Levy Issued against Trust Beneficiaries

United States v. Michel, 08 CV 1313 DRH WDW, 2012 WL 3011124 (E.D.N.Y. July 23, 2012)

In a case before the United States District Court for the Eastern District of New York, the United States government commenced an action against a trustee in order to collect unpaid federal taxes owed by the trust beneficiary. The District Court granted the government’s summary judgment motion and found the trustee liable for unpaid federal taxes plus interest.

Case Details

In 1995, the beneficiary’s mother died.  Pursuant to her will, the majority of her estate was left to be held in trust, and administered, managed, invested and reinvested by the trustee as set forth in the will.  The relevant provision of the will directed the trustee to pay her son, the sole beneficiary of the trust, at least $1,000 per month, but not more than 60-percent of the net income of the trust.

The same provision also provided the trustee with sole discretion to pay trust principal to her son as necessary for the comfortable “maintenance, support, health, education and well being” of her son, and his two sons.  In February 1996, the trustee was issued letters of trusteeship for the trust created by the will.

Delinquent Tax Liability

In April 1996, the trustee was informed by his attorney by letter that the son owed the federal government for various taxes totaling $246,579.  The attorney additionally informed the trustee that whatever income was going to the son, regardless of the source, must go first to the creditor.  In June 1996, the trustee was served with an Internal Revenue Service (IRS) Notice of Levy and Notice of Federal Tax Lien. The Notice of Levy listed federal income tax liabilities and civil penalties that the son owed to the IRS for tax years 1979 through 1989.

The notice further stated that the levy required the trustee to turn over to the IRS “this person’s property and rights to property (such as money, credits and bank deposits) that you have or which you are already obligated to pay this person.”  In either 2000 or 2001, the trustee was directed by his new attorney to make distributions from the trust to the son because the IRS had been satisfied.

The trustee did not see the paperwork documenting satisfaction of the IRS levy and signed blank checks to permit the attorney to draw on the trust account for the son.  The government then commenced action against the trustee to collect the son’s delinquent tax liability through the judicial enforcement of the IRS levy.

Delinquent Tax Collection

The IRS has two principal tools to collect delinquent taxes.  The first is a lien foreclosure suit, brought pursuant to 26 U.S.C. § 7403(a).  The other is the issuance of a levy upon all property and rights to property belonging to the delinquent taxpayer, pursuant to 26 U.S.C. § 6331(a).  Where the taxpayer’s property is being held by another, the notice of levy is customarily served upon the custodian of the property pursuant to 26 U.S.C. § 6332(a).

Serving the notice on the custodian creates a custodial relationship between the person holding the property and the IRS so that the property comes into constructive possession of the government.  If the custodian fails or refuses to surrender the property or rights to property subject to the levy, the custodian becomes liable in his own person and estate to the government in the sum equal to the value of what he failed to surrender.  26 U.S.C. § 6332(d)(1).

Trust Instruments Under New York Law

Pursuant to New York law, the plain language of the trust instrument must be analyzed in order to determine a trust beneficiary’s property rights in trust income or principal.  The Second Circuit has held that a beneficiary has a property interest in trust income when the trust instrument sets out the trustee’s duty to pay income in mandatory terms.  Magavern v. United States, 550 F.2d 797, 801 (2d Cir.1977).  Therefore, when the trustee is required to make a payment of trust income to a beneficiary, even when the amount and timing of the mandatory income distribution are left to the trustee’s discretion, the trust beneficiary has a property right in trust income that is subject to a tax levy.

Beneficiary Property Rights 

In the instant case, because the trustee’s duty pay out a certain amount of trust income was set forth in mandatory terms, the beneficiary had a right to property in the trust income, and the government tax levy could attach to this right.  However, the will did not require the trustee to pay trust principal to the beneficiary.  The terms of the trust left decisions with respect to the trust principal entirely to the trustee’s discretion.  Therefore, the beneficiary had no attachable right to property in the trust principal until the trustee decided to make a distribution of such principal to him.

The District Court concluded that the beneficiary had some property rights to both the trust income and that portion of the trust principal, if any, that was distributed to him.  These rights to property were in the possession of the trustee, and it was undisputed under the facts of the case that the trustee did not surrender any levied property to the IRS in compliance with 26 U.S.C. § 6332(a).  Therefore, the trustee could be liable in his own person and estate to the government under 26 U.S.C. § 6332(d)(1).

Avoiding Personal and Estate Liability 

A custodian of property or rights to property that are subject to an IRS levy has only two defenses to avoid liability in his own person and estate.  The first available defense is that the trustee is neither in possession of nor obligated with respect to the property or rights to property belonging to the delinquent taxpayer.  26 U.S.C. § 6332(a).  The second available defense is that the taxpayer’s property or rights to property at issue are subject to attachment or execution under a judicial process.  Id. 

In the instant case, the first defense was not applicable because, pursuant to the terms of the will, the trustee was both obligated to pay the beneficiary certain amounts of trust income at given intervals and empowered to make discretionary distributions.  The trustee made no suggestion that the second defense was applicable.

The absence of intentional or negligent conduct is not relevant as to whether an enforcement action may be maintained against the custodian; therefore, good faith could not absolve the trustee of liability for his failure to comply with his statutory obligations to surrender property pursuant to a valid IRS Notice of Levy.  Therefore, the District Court found that the trustee could not avoid liability for his actions under either of the two statutorily available defenses.

The Court’s Decision

The District Court determined that the government established as a matter of law that the trustee failed to honor the Notice of Levy served on the trust beneficiary in June 1996 by improperly distributing estate assets to the trust beneficiary after the date of the levy.  However, the court also held that the trustee was liable for less than the judgment amount requested by the government, but the court permitted the government to submit a supplemental briefing as to its entitlement to additional estate money to which the trust beneficiary had a property right.


Should you have any questions relating to trusts or other personal asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.

Secretary Sues Board of Ed for Racial Discrimination

A Bronx school employee is suing the Board of Education for $100 million for employment discrimination – saying she was denied a transfer, even though officials knew she was being harassed by her boss. Maureen Grogan, 54, a secretary at Community School Board District 8 since 1977, said Dennis Coleman – president of the School Boards Association and a Board 8 member – began harassing her five years ago.

In July, the board agreed she had been the victim of racial discrimination and harassment by Coleman – but refused to further suspend him, or offer her a position in a different office. The Board of Education did not provide a comment.

New York Post
By LINDA MASSARELLA


If you have questions regarding employment discrimination or any employment matter, contact Joseph Maya at 203-221-3100 or by email at JMaya@MayaLaw.com.

Dennis Coleman’s Bad Behavior Costs Board of ED $100G

The city’s Board of Education settled a discrimination and retaliation lawsuit brought by a former Bronx School Board employee for $100,000.

The Lawsuit

The suit, filed against the Board of Ed and others by Maureen Grogan, a long-time secretary at Community School Board 8, alleged sexual and racial harassment and assault by Dennis Coleman, a member and former president of that board.  A counterclaim made by Coleman, alleging that Grogan’s accusations were false and defamatory, was dismissed by the court also last week.

Coleman, at one time a State Senator for a short period in the mid-1960s, was suspended by then School Chancellor Rudy Crew several years ago in connection with his behavior over an incident during a school board meeting. A tape of the meeting revealed that he had yelled at a parent in attendance, and shoved Grogan, re-injuring an old neck problem she suffered from.

Coleman is still a member of the Board. The suit, which alleged a pattern of discrimination that stretched through years, added fuel to the fire of that board’s already hot flames of racial division. Grogan’s suit claimed that Coleman would regularly treat her in an abusive fashion, making her feel “insulted and humiliated.”

An investigation by the Office of Equal Opportunity Employment into the allegations found grounds substantiating at least some of Grogan’s claims. Despite the findings, however, Board of Education officials did not reprimand Coleman, sparking the suit filed by Grogan’s lawyer, Joseph Maya, in federal court for the Southern District of New York.

The Settlement

Coleman was later suspended in connection with the incident at the school board meeting. In Crew’s harsh suspension letter to Coleman at that time, the school’s chancellor had said that Coleman’s actions, “went beyond that of antagonism and rudeness and crossed the line beyond which elected school board members can go… your vilification of parents, as well as your shouting at colleagues and staff … are indefensible.”

Coleman could not be reached for comment as of press time. Board of Education officials were also unavailable for comment as of press time. Maya, reached by phone, called the settlement a “tremendous victory” for his client.

“It really is a victory for her to be vindicated,” Maya said. “And to have Dennis Coleman’s counterclaims dismissed.”

Maya called the entire incident a shame, saying that “The children of New York City should not be burdened with losing $100,000 for this sort of thing.”

According to Maya, last week’s settlement came after long negotiations between both parties. He called the discrimination suffered by his client “egregious and systemic.”

By DAVID CRITCHELL

Is a Bonus a ‘Wage’?: Not According to this Connecticut Supreme Court Decision

Are you currently employed in Connecticut and have been promised a year-end bonus or had been promised a year-end bonus and never received it?   A Connecticut Supreme Court decision may affect the amount of protection you are afforded under Connecticut law if your employer defaults or has defaulted on that promise.

This case addressed the question of whether a year-end bonus promised by an employer is considered a ‘wage’ for the purposes of the Connecticut Wage Act.  Answering that question in the negative, the Supreme Court denied a Connecticut employee the ability to proceed with a wrongful withholding of wages claim that he had initially pursued after his employer failed to pay out what the employee had thought to be a promised year-end bonus.

The Conditions of a Bonus Payment

Under this decided Supreme Court case, the amount of liability your employer will face for failing to pay out a promised year-end bonus will hinge upon how your employer defined the conditions under which a bonus would be paid.  If the conditions are specific goals set for you as an individual employee (e.g. a certain number of billable hours need to be reached), then under the Connecticut Wage Act your employer will be required to pay out that bonus as wages in accordance with their promise.

If they do not, you are afforded the protections of the Wage Act and can bring an action against your employer for wrongfully withholding wages.  In the case that this action is successful, it is possible that you could receive, by way of damages, twice the full amount of your bonus and any attorney fees incurred in pursuing the action.  In addition, due to the serious nature of such an offense, your employer could potentially be fined and/or imprisoned for their actions.

Unfortunately, however, if your employer was more ambiguous about the requisite conditions for a bonus, under this new case law, it is likely that they will be able to avoid liability for wrongfully withholding your wages.  If that is the case, while you can still pursue other causes of action against your employer, you will not be able to receive twice the full amount of your bonus or attorney fees.

Case Details

The events of this case unfolded as follows:   At the beginning of the employment relationship between an employee and a Connecticut law firm, the parties agreed that the employee’s annual compensation would consist of a base salary and a year-end bonus.  The employment contract called for this year-end bonus to be based on factors such as seniority, business generation, productivity, professional ability, pro bono work, and loyalty to the firm.

The employee remained at the firm for several years and each year he received his salary and the promised year-end bonus.  When the employee left the firm he discovered that he was not going to receive the year-end bonus for that last year of his employment.  To try and recover what he had thought was a promised bonus; the employee commenced an action against his employer alleging breach of contract and wrongful withholding of wages.

The Court’s Decision

The trial court dismissed the wrongful withholding of wages claim, determining that the year-end bonus was not ‘wages’ as defined by the Connecticut Wage Act.  The breach of contract claim, however, went to trial.  The Trial Court found in favor of the employee and awarded him damages in the amount of his year-end bonus plus interest.

On appeal, the Appellate Court upheld the Trial Court’s finding as to the breach of contract claim but reversed the Trial Court’s decision to dismiss the wrongful withholdings of wages claim.  The Appellate Court determined that the structure of the agreement as to the year-end bonus meant that the bonus could have been classified as ‘wages’ under the Connecticut Wage Act and therefore held that the employee could proceed with his wrongful withholding of wages claim.

The issue of the wrongful withholdings of wages claim was appealed to the Connecticut Supreme Court where the Court decided that because the employee’s bonus was discretionary, (not ascertainable by applying a formula) it did not constitute ‘wages’ under the Connecticut Wage Act.  The employee, therefore, was not able to proceed with his wrongful withholding of wages claim.

Although the employee did recover some monetary damages through his breach of contract claim, it was not anywhere near as much as he would have received if he had been able to proceed with his wrongful withholding of wages action.

Importance of Knowing the Terms of Your Bonus

It is quite possible that after the release of this opinion many employers will revisit their bonus policies to make the language a little less precise or announce that their bonuses are discretionary in order to take advantage of the protections afforded under this case.  It is important, therefore, that as an employee you are aware of what kind of bonus you have been promised so that you know how strongly to rely on that promised bonus and what options are available to you if the employer refuses to pay.

If you have already been denied your year-end bonus and believe that it was a discretionary bonus, there are still ways in which you can potentially recover that lost income, such as the breach of contract claim pursued by the employee in this case.  If you have been denied a year-end bonus that was not discretionary and you had met the required conditions for receiving that bonus, you are still protected under the Connecticut Wage Act and can bring a wrongful withholding of wages action against your employer.  This action may allow you to receive damages in the amount double your bonus and possibly receive any incurred attorney fees.

If you have any questions regarding employment and labor law in Connecticut, please contact Joseph C. Maya, Esq. He can be reached at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com. Mr. Maya handles cases involving employment contracts, separation agreements, non-competition agreements, restrictive covenants, union arbitrations, and employment discrimination cases in New York and Connecticut.

Medical Marijuana Use in the Connecticut Workplace

The news that Connecticut has given its approval to four medical marijuana growers in Simsbury, West Haven, Portland, and Watertown, inches the state that much closer to full implementation of the medical marijuana law that was passed in 2012.

The state also reported that over 1600 individuals in Connecticut have been certified by the state to receive medical marijuana. That number is expected to grow once production begins in earnest.

Add to that news, the legalization of marijuana in Colorado and Washington and employers now have a whole new area of law to familiarize themselves with.

It would be easy to just write some puns on the matter (and who can resist it in the headline) but it’s not such a laughing matter to employers struggling to figure out what the rules of the road are.

Summary of CT Medical Marijuana Laws

There are 5 important takeaways from CT’s medical marijuana laws:

  • Employers may not refuse to hire a person or discharge, penalize or threaten an employee based solely on such person’s or employee’s status as a qualifying patient or primary caregiver.
  • Employers may discriminate if required by federal funding or contracting provisions.
  • Employers MAY continue to prohibit the use of intoxicating substances, including marijuana, at work.
  • Employers MAY continue to discipline employees for being under the influence of intoxicating substances at work.
  • But employers MAY NOT presume that a drug test result that is positive for marijuana means that the employee used at work or was under the influence at work.

While it is clear under [state law] that an employer may terminate or discipline an employee who reports to work impaired on account of his/her medical marijuana use, the law does not address how employers are to treat employees … who use marijuana during non-work hours, but will inevitably fail routine drug tests administered pursuant to a drug-free workplace policy.

Considering Employer Liability

If the employer terminates [the employee] for violating its policy, it risks liability if she proves she was not under the influence at work. On the other hand, if it does not terminate …, the employer risks liability should [the employee] report to work under the influence and injure herself or others.

Another novel issue that is arising? Suppose your employee is on a business trip in Colorado. After a sales meeting, on the way back to his hotel, the employee legally purchases and then consumes some Rocky Mountain marijuana. Can you discipline the employee for engaging in a legal activity while on “company business”?

As long as we have disparate state laws on the subject, we’re not going to get clear cut answers. For employers, be sure to stay up to date on the developments and talk with your legal counsel about the implications for your business now that we are on the outskirts of implementation.

Credit to Daniel Schwartz of Shipman and Goodwin LLP.

If you are the victim of workplace harassment, wrongful termination, or any other labor law crime, it is imperative that you consult with an experienced employment law practitioner. The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment law practitioners and assist clients in Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County. Please do not hesitate to contact Attorney Joseph C. Maya, Esq. He may be reached at Maya Murphy, P.C., 266 Post Road East, Westport, Connecticut, by telephone at (203) 221-3100, or by email at jmaya@mayalaw.com

Faragher/Ellerth Defense Applied to Protect Employer from Liability for Sexual Harassment

In a recent 11th Circuit Court case decided this year, the Court applied the Faragher/Ellerth defense to bar an employee’s sexual harassment suit under Title VII and state law.[1]

Case Details

There, a male hairdresser filed suit against his employer alleging sexual harassment in violation of Title VII and Florida’s Civil Rights Act.  The employee alleged that his employer Creative Hairdressers was liable for allowing his former manager at a Hair Cuttery salon to sexually harass him. The United States District Court for the Southern District of Florida granted the employer’s motion for summary judgment, finding that there were no genuine issues of material fact that Hair Cuttery exercised reasonable care to prevent and correctly promptly any sexually harassing behavior, and that White unreasonably failed to take advantage of preventive or corrective opportunities or to avoid harm.

Avoiding Liability Under the Faragher/Ellerth Defense

The Supreme Court in Faragher v. City of Boca Raton[2] and its companion case Burlington Industries, Inc. v. Ellerth[3] recognized certain affirmative defenses an employer can assert to preclude liability when an employee alleges sexual harassment by a supervisor.

Even if an employee establishes a prima facie case of sexual harassment, an employer can avoid liability under the Faragher/Ellerth defense if the employer shows (1) that it exercised reasonable care to prevent and promptly correct harassing behavior, and (2) that the employee unreasonably failed to take advantage of any preventative or corrective opportunities provided by the employer, or to otherwise avoid harm. Both elements must be satisfied for the employer to avoid liability, and the employer bears the burden of proof on both elements.

In affirming District Court’s grant of summary judgment in favor of the employer, the 11th Circuit held that the Faragher/Ellerth defense applied to bar the employee’s claims under Title VII and the FCRA.  The Court recognized that the undisputed evidence demonstrated that Hair Cuttery had promulgated and adequately disseminated sexual harassment policies and complaint procedures to its employees.

Further, the court held that the employee failed to promptly take advantage of Hair Cuttery’s sexual harassment policies and complaint procedures by not promptly notifying the company of his harassment.[4]

Failure to follow employer harassment policies can prevent a valid harassment claim.  If you are the victim of sexual harassment or discriminatory treatment in the workplace, it is imperative that you consult with an experienced employment law practitioner.  The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment law practitioners and assist clients in New York City, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.

Should you have any questions workplace discrimination or any other employment law matter, please do not hesitate to contact Attorney Joseph C. Maya, Esq. He may be reached at Maya Murphy, P.C., 266 Post Road East, Westport, Connecticut, by telephone at (203) 221-3100, or by email at JMaya@mayalaw.com.


[1] White v. Creative Hairdressers Inc., 11-16121, 2013 WL 203312 (11th Cir. Jan. 18, 2013)

The Best Employment Lawyers in Connecticut and New York

Employment Discrimination Lawyers in New York and Connecticut

State and national laws protect employees from being subjected to discriminatory treatment and termination in the workplace because of the employee’s gender, race, age, national origin, religion, pregnancy, sexual orientation, or disability. If you have reason to believe that you have experienced discrimination on the job, you should contact Joseph C. Maya, Esq. right away. Mr. Maya has a national reputation for successfully handling employment discrimination matters. He can be contacted via e-mail at JMaya@Mayalaw.com or by dialing (203) 221-3100 in Connecticut or (212) 682-5700 in New York.

Laws Protect Employees from Sexual Harassment in the Workplace

These laws also protect employees from sexual harassment , a hostile work environment, and from being touched in an offensive manner in the workplace by supervisors, coworkers, or even clients. Employees have a right to stop discriminatory conduct in the workplace. If an employee tries to stop that conduct or notifies a supervisor that discriminatory conduct has occurred, that employee also has protection, under state and national laws, from retaliation by the supervisor or employer.

In fact, any person who complains to his or her superior or employer has protection from the law against retaliation by his or her employer. If you feel you might be a victim of racial, gender, or sexual discrimination on the job, you should contact Joseph C. Maya, Esq. at JMaya@Mayalaw.com or by dialing him at (203) 221-3100 or (212) 682-5700. Let our experience guide you and protect your legal rights at work.


Serving Stamford, Greenwich, Norwalk and surrounding communities including Darien, New Canaan, Westport, Wilton & Weston; the greater Bridgeport area including Fairfield, Stratford, Monroe & Redding; the greater Danbury area including Ridgefield, Newtown & Bethel; and the communities surrounding Milford and New Haven. We also serve all of Westchester and New York Counties.

Failure to “Check the Box” on EEOC Complaint Bars Employee’s Hostile Work Environment Claim

In a pro se case, the United States District Court of Florida granted summary judgment for Target Corp., the employer of the plaintiff, denying the employee’s Title VII claim of a hostile work environment for checking the wrong boxes on her EEOC claim.[1]

The plaintiff in the case was employed by the defendant, Target Corp.  During the period before her pregnancy in 2008 and 2009, she received positive performance reviews of “meets expectations” and “effective.”[2]  In 2010, she informed Target that she was pregnant. On May 19, 2010, the employee received another “effective” on a Team Member Performance Review, but that review also contained several comments, including:

I challenge you to focus on communicating with your supervisors about any conflicts with your availability. The store is staffed according to the guest traffic and business. When team members do not show for their shifts or do not communicate with their ETL about conflicts with their availability, it makes it difficult for the team to successfully accomplish their tasks….[3]

The Employee’s Claims

The employee claimed that her supervisor told her that any further absences could cost the plaintiff her job. In her deposition, the employee stated:

[Supervisor] told me that I could not ask for a day off under any circumstances. That I could not call in to request an absence. And that I knew what would happen to me if from that day on I would call saying I was not going to work. During [t]he meeting she repeated those phrases about five or six times. She told me that the Target schedule was already set, and the fact that I called, that I would call in a certain day for an absence, it would send, it would make the Target schedule out of control…. She wanted me to work under any condition. Placing my life and my baby’s life at risk.[4]

The employee also stated that her supervisor placed her on a “one-week probation and if during that week I missed work for any reason, that I would be terminated. The employee did not present any medical notes to her supervisor during the meeting on June 11, 2010; in fact, the employee was not told that her pregnancy was high-risk until June 14, 2010.[5]

On June 14, 2010, she delivered another letter to Target, this one alleging pregnancy discrimination and informing Target that a charge would be filed with the Equal Employment Opportunity Commission.[6]  The employee filed a charge of discrimination with the EEOC on June 15, 2010. On the charge, she checked only the box labeled “sex,” but not the box for “retaliation,” or the box labeled “continuing action.”[7]

Filing an EEOC Charge

Before filing a suit under Title VII, a plaintiff must exhaust her available administrative remedies by first filing a charge with the EEOC. “The starting point of ascertaining the permissible scope of a judicial complaint alleging employment discrimination is the administrative charge and investigation.”[8] Circuit Courts has stated that a plaintiff’s complaint is “limited by the scope of the EEOC investigation which can reasonably be expected to grow out of the charge of discrimination.” New claims “are allowed if they amplify, clarify, or more clearly focus the allegations in the EEOC complaint….” [9]

The Court reasoned the proper inquiry was whether her Amended Complaint was like or related to, or grew out of, the allegations contained in her EEOC charge. The checked only the box labeled “sex” on her EEOC charge of discrimination; but did not check the box for “retaliation,” or the box labeled “continuing action.”  While the Court found that her claim for retaliation under Title VII was not barred because it grew out of her earlier charge, the Court stated that her failure to check “continuing action” precluded her from asserting a Title VII claim for sexual harassment through hostile work environment.[10]

Failure to follow proper administrative procedure when filing a discrimination claim with the EEOC can bar an otherwise valid claim.  If you are the victim of sexual harassment or discriminatory treatment in the workplace, it is imperative that you consult with an experienced employment law practitioner.  The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment law practitioners and assist clients in New York City, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.

Should you have any questions workplace discrimination, Title VII discrimination or any other employment law matter, please do not hesitate to contact Attorney Joseph C. Maya, Esq. He may be reached at Maya Murphy, P.C., 266 Post Road East, Westport, Connecticut, by telephone at (203) 221-3100, or by email at JMaya@mayalaw.com.