The Appellate Division of the New York Supreme Court has tossed Dan Rather's breach-of-contract and fraud complaint against CBS. Here is the text of the complete decision.
Decided on September 29, 2009
SUPREME COURT, APPELLATE DIVISION
First Judicial Department
Luis A. Gonzalez, P.J.
John T. Buckley
James M. Catterson
James M. McGuire
Dianne T. Renwick, JJ.
[*1]Dan Rather, Plaintiff-Respondent-Appellant,
CBS Corporation, Defendant-Appellant-Respondent, Viacom, Inc., et al.,
Plaintiff Dan Rather appeals from a judgment of the Supreme Court, New
York County (Ira Gammerman, J.H.O.), entered April 14, 2008, dismissing
the complaint as against the individual defendants, and bringing up for
review an order, same court and J.H.O., entered April 11, 2008, which,
inter alia, granted defendants' motion to dismiss the complaint to the
extent of dismissing the causes of action for fraud, breach of the
implied covenant of fair dealing, and tortious interference with
prospective business relations, and denied the motion to the extent it
sought to dismiss the causes of action for breach of contract and breach
of fiduciary duty, and from a judgment, same court and J.H.O., entered
September 30, 2008, dismissing the amended complaint as against Viacom,
Inc. and dismissing the causes of action for fraud and tortious
interference with contract as against CBS Corporation, and bringing up
for review [*2]an order, same court and J.H.O., entered September 23,
2008, which granted CBS and Viacom's motion to the extent it sought to
dismiss the causes of action for fraud and tortious interference with
contract and denied the motion to the extent it sought to dismiss the
cause of action for breach of fiduciary duty. Cross appeals from the
Weil, Gotshal & Manges LLP, New York (James W.
Quinn, Mindy J. Spector and
Yehudah L. Buchweitz of
counsel), and CBS Law
Department, New York (Anthony
M. Bongiorno and Mary
Catherine Woods of counsel),
for appellant-respondent and
Sonnenschein Nath & Rosenthal LLP, New York
(Martin R. Gold, Gary
Meyerhoff, Edward J. Reich, Daniel
Pancotti, and Zhubin Parang
of counsel), for respondent-
This action asserting breach of contract and related tort claims arises
out of a September 8, 2004 broadcast that plaintiff Dan Rather narrated
on the CBS 60 Minutes II television program about then President George
W. Bush's service in the Texas Air National Guard. Rather alleges that
CBS disavowed the broadcast after it was attacked by Bush supporters,
and fraudulently induced him to apologize personally for the broadcast
on national television as well as to remain silent as to his belief that
the broadcast was true. Rather alleges that, following President Bush's
re-election, CBS informed him that he would be removed as anchor of the
CBS Evening News. Rather claims that although his employment agreement
required that, in the event he was removed as anchor, CBS would make him
a regular correspondent on 60 Minutes or immediately pay all amounts due
under the agreement and release him to work elsewhere, CBS kept him on
the payroll while denying him the opportunity to cover important news
stories until May 2006 when it terminated his contract, effective June
Rather commenced this action against CBS Corporation, Viacom Inc., and
individual defendants Leslie Moonves, Sumner Redstone and Andrew Heyward
in September 2007. He asserted, inter alia, claims of breach of contract
and breach of fiduciary duty against CBS; claims of fraud against CBS
and the individual defendants and a claim of tortious inducement of
breach of contract against Viacom and the individual defendants.
Now, Rather appeals and defendants CBS Corporation and Viacom Inc.
cross-appeal from orders entered by Supreme Court on April 11, 2008 and
September 25, 2008, which granted defendants' motion to dismiss the
claims for fraud, breach of the implied covenant of good faith and fair
dealing and tortious interference with contract, and denied defendants'
motion to dismiss the claims for breach of contract and breach of
For the reasons set forth below, this Court finds that the motion court
erred in denying the defendants' motion to dismiss the claims for breach
of contract and breach of fiduciary duty, and [*3]therefore we find the
complaint must be dismissed in its entirety.
As a threshold matter, we find that Rather's appeal from the portion of
the April 11, 2008 order that dismissed his fraud claims against the
individual defendants was not rendered academic by his service of an
amended complaint against the remaining defendants. See Velez v.
Feinstein, 87 A.D.2d 309, 312-313, 451 N.Y.S.2d 110, 113 (1982), lv.
dismissed in part, denied in part, 57 N.Y.2d 737, 454 N.Y.S.2d 987, 440
N.E.2d 1334 (1982). Moreover, for reasons set forth below, we find that
Rather's service of a second amended complaint does not render moot his
cross appeal from that portion of the September 25, 2008 order that
dismissed his fraud claim. On the record before us, we assume, without
deciding, that Rather's claim of breach of the implied covenant of good
faith and fair dealing asserted as against CBS in the original complaint
may also properly be reviewed. cf. O'Ferral v. City of New York, 8 AD3d
457, 459, 779 N.Y.S.2d 90, 91 (1st Dept. 2004) (since court granted
leave to file amended complaint that superseded original complaint,
issue of disposition of claim included in original but not in amended
complaint is academic).
At the outset, we find that Supreme Court erred in declining to dismiss
Rather's breach of contract claim against CBS. Rather alleges that he
delivered his last broadcast as anchor of the CBS Evening News on March
9, 2005, and that, since he was only nominally assigned to 60 Minutes II
and then 60 Minutes, he should have received the remainder of his
compensation under the agreement in March 2005. Rather claims that, in
effect, CBS "warehoused" him, and that, when he was finally terminated
and paid in June 2006, CBS did not compensate him for the 15 months
"when he could have worked elsewhere." This claim attempts to gloss over
the fact that Rather continued to be compensated at his normal CBS
salary of approximately $6 million a year until June 2006 when the
compensation was accelerated upon termination, consistent with his
Contractually, CBS was under no obligation to "use [Rather's] services
or to broadcast any program" so long as it continued to pay him the
applicable compensation. This "pay or play" provision of the original
1979 employment agreement was specifically reaffirmed in the 2002
Amendment to the employment agreement.
That Amendment also provided, in subparagraph 1(g), that if CBS removed
Rather as anchor or co-anchor of the CBS Evening News and failed to
assign him as a correspondent on 60 Minutes II or another mutually
agreed upon position, the agreement would be terminated, Rather would be
free to seek employment elsewhere, and CBS would pay him immediately the
remainder of his weekly compensation through November 25, 2006.
We agree that subparagraph 1(g) must be read together with the
subparagraph 1(f), which provided that if CBS removed Rather from the
CBS Evening News, it would assign him to 60 Minutes II "as a full-time
Correspondent," and if 60 Minutes II were canceled, it would assign him
to 60 Minutes as a correspondent "to perform services on a regular
basis." However, this construction does not render any language of the
agreement inoperative, since, consistent with the "pay or play" clause,
neither subparagraph 1(g) nor 1(f) requires that CBS actually use
Rather's services or broadcast any programs on which he appears, but
simply retains the option of accelerating the payment of his
compensation under the agreement if he is not assigned to [*4]either
It is clear that subparagraph 1(g) applies only to a situation where CBS
removed Rather as anchor of CBS Evening News and then failed to assign
him "as a Correspondent on 60 Minutes II." The amended complaint alleges
that when Rather no longer performed anchor duties at CBS, he was
assigned to 60 Minutes II. Thus, Rather implicitly concedes that CBS
fully complied with subparagraph 1(g).
Supreme Court erred in finding that subparagraph 1(g) modified the "pay
or play" provision when it ignored the initial prefatory clause to the
rest of that subparagraph, which states "[e]xcept as otherwise specified
in this Agreement." As the defendants correctly assert, the seven words
are crucial because they require subparagraph 1(g) to be read together
with the "pay or play" provision, and thus, subparagraph 1(g) cannot
modify the "pay or play" provision to mean that CBS must utilize Rather
in accordance with some specific standard by featuring him in a
sufficient number or types of broadcasts. As the defendants aptly
observed, "the notion that a network would cede to a reporter editorial
authority to decide what stories will be aired is absurd."
Rather's claim for lost business opportunities due to CBS's failure to
release him to seek other employment is insufficiently supported. Since,
according to Rather's own allegations, an immediate result of the
September 8, 2004 broadcast was criticism that he was biased against
Bush, it would be speculative to conclude that any action taken by CBS
would have alone substantially affected his market value at that time.
Rather's claim for damages for loss of reputation arising from the
alleged breach of contract is not actionable. Dember Constr. Corp. v.
Staten Is. Mall, 56 A.D.2d 768, 392 N.Y.S.2d 299 (1st Dept. 1977).
Rather's cause of action for breach of fiduciary duty must also be
dismissed. Supreme Court held that the issue of "whether a fiduciary
duty has been created in the course of the long relationship between
Rather and CBS is really a question of fact." Previously, the court
determined that "the length of [Rather's] contractual relationship with
[CBS], and the nature of the service that [Rather] performed under his
contracts" created an issue of fact that could not be resolved on
motion. This was error.
Rather claims that his "four-decade history" with CBS constituted a
"special relationship that imposed fiduciary duties upon CBS toward
[Rather]." The law in this Department, and indeed enunciated in every
reported appellate-division-level case, is that employment relationships
do not create fiduciary relationships. Simply put, "[the employer] did
not owe plaintiff, as employee, a fiduciary duty." Angel v. Bank of
Tokyo-Mitsubishi, Ltd., 39 AD3d 368, 370, 835 N.Y.S.2d 57, 60 (1st Dept.
2007), citing Weintraub v. Phillips, Nizer, Benjamin, Krim & Ballon, 172
A.D.2d 254, 568 N.Y.S.2d 84 (1st Dept. 1991); see Schenkman v. New York
Coll. Of Health Professionals, 29 AD3d 671, 672, 815 N.Y.S.2d 159, 161
(2d Dept. 2006) ("[employees] failed to plead any facts demonstrating
how the arm's-length, employer-employee relationship [...] gave rise to
any fiduciary duty."); Cuomo v. Mahopac Natl. Bank, 5 AD3d 621, 622, 774
N.Y.S.2d 779, 780 (2d Dept. 2004), lv. denied, 3 NY3d 607, 785 N.Y.S.2d
25, 818 N.E.2d 667 (2004).
The length of Rather's tenure at CBS is irrelevant to, and does not
support, this claim of a [*5]fiduciary relationship (see e.g., Michnick
v. Parkell Prods., 215 A.D.2d 462, 626 N.Y.S.2d 265 (2d Dept. 1995)),
nor does Rather's status as "the public face of CBS News after Walter
Cronkite retired [...]." See e.g. Maas v. Cornell Univ., 245 A.D.2d 728,
666 N.Y.S.2d 743 (3d Dept. 1997).
Supreme Court's reliance on Apple Records v. Capitol Records (137 A.D.2d
50, 529 N.Y.S.2d 279 (1st Dept. 1988)) and Wiener v. Lazard Freres & Co.
(241 A.D.2d 114, 672 N.Y.S.2d 8 (1st Dept. 1998)), was also error.
Unlike in Apple Records, where fledgling musicians ultimately became a
worldwide music phenomenon known as the Beatles, Rather was an
established correspondent represented by a leading talent agent, who
negotiated a contract that was extensively amended several times, that
paid Rather a lucrative salary, and that detailed, in 50 pages,
everything from his assignments and on-air work at CBS Evening News to
requirements that he attend rehearsals and join the union. See Faulkner
v Arista Records LLC, 602 F.Supp.2d 470, 484 (S.D.N.Y. 2009) ("there are
no facts here to suggest that the dealings between the Rollers and
Arista were anything other or more than garden-variety arm's length
The Apple Records court also made plain that the defendant was not only
the exclusive distributor of and manufacturer of the Beatles' recordings
but also that the Beatles "entrusted their musical talents" to the
defendant over a period of many years commencing when the Beatles were
"still unacclaimed." Apple Records, supra, 137 A.D.2d at 57, 529
N.Y.S.2d at 283. No such exclusive distributor relationship exists in
the instant case. (See e.g. Zimmer-Masiello, Inc. v. Zimmer, Inc., 159
A.D.2d 363, 552 N.Y.S.2d 935 (1st Dept. 1990)), nor can Rather argue
that he "entrusted" his particular talents to CBS. Indeed, it may well
be that Apple Records will remain a singular holding because of its
application to a phenomenon (unacclaimed artists who were also
unsophisticated businessmen thrust to the pinnacle of success at warp
speed) that's not likely to be seen again, not even on American Idol.
Similarly, Supreme Court improperly relied on Wiener, where we found
that the plaintiff specifically alleged that employees of the defendant
acted on the plaintiff's behalf in conducting negotiations with a bank,
and that they relied on the defendant's "expertise and reputation" as
well as certain connections inside the management of the bank. 241
A.D.2d at 123, 672 N.Y.S.2d at 15. It simply cannot be argued that CBS
acted as Rather's agent when Rather employed his own agent to negotiate
with CBS for Rather's benefit. Any claim to the contrary is belied by
both the evidence and common sense.
We affirm dismissal of Rather's fraud claims against CBS and the
individual defendants although we find that Supreme Courterred in its
rationale for the dismissal as it also erred in rejecting the
defendants' other challenges to the fraud claim.
We take judicial notice of Rather's second amended complaint
(hereinafter referred to as "SAC") filed by leave of Supreme Court on
July 27, 2009, and by separate order, as a matter of discretion in the
interest of judicial economy, we deny Rather's motion to withdraw that
portion of his appeal relating to the dismissal of his fraud claim.
The SAC repleads the fraud claim in an attempt to remedy the defects to
which Supreme Court pointed in its dismissal of the claim in its
September 25, 2008 order. However, Supreme [*6]Court erred in its
rationale for the dismissal in holding that Rather "failed to allege
[...] that his financial compensation at HDNet [...] is less than he
would have received had his contract been renewed." Thus, the mere
inclusion of Rather's actual annual compensation at HDNet is not helpful
to his case, and would not be helpful to his case before this Court at
any future date.
Rather alleges that various misrepresentations ( e.g., promises to
publicly defend his reputation and to conduct an independent
investigation into the 2004 broadcast, and assurances that CBS intended
to use his talents fully and to extend his contract, which was due to
expire on November 25, 2006) induced him to remain silent about his role
in the broadcast and to remain with CBS, where he was allegedly
"warehoused" until thecompletion of his contract. As a result, he
alleges he suffered money and reputation damages. Relying on Rather's
well-footnoted appellate brief, this Court was already cognizant of his
argument that, following the completion of his CBS contract, his
compensation at HDNet was less than the $4 million a year established as
an approximate market rate for comparable journalists. However, for
reasons set forth here, this information was not required for our
analysis, and the lack of it was not the reason for affirming dismissal.
It is hornbook law that,
"In an action to recover damages for fraud, the plaintiff must prove a
misrepresentation or a material omission of fact which was false and
known to be false by defendant, made for the purpose of inducing the
other party to reply upon it, justifiable reliance of the other party on
the misrepresentation or material omission, and injury."
Lama Holding Co. v. Smith Barney, 88 N.Y.2d 413, 421, 646 N.Y.S.2d 76,
80, 668 N.E.2d 1370, 1373 (1996), citing Channel Master Corp v. Aluminum
Ltd. Sales, 4 N.Y.2d 403, 176 N.Y.S.2d 259, 151 N.E.2d 833 (1958).
Supreme Court properly dismissed Rather's fraud claims for failure to
allege pecuniary loss.
"The true measure of damage is indemnity for the actual pecuniary loss
sustained as the direct result of the wrong or what is known as the
out-of-pocket rule. Under this rule, the loss is computed by
ascertaining the difference between the value of the bargain which a
plaintiff was induced by fraud to make and the amount or value of the
consideration exacted as the price of the bargain. Damages are to be
calculated to compensate plaintiffs for what they lost because of the
fraud, not to compensate them for what they might have gained. Under the
out-of-pocket rule, there can be no recovery of profits which would have
been realized in the absence of fraud." Lama, 88 N.Y.2d at 421, 646
N.Y.S.2d at 80 (internal quotation marks and citations omitted).
Thus, under Lama Holding Co. and its progeny, Rather was required to
plead that he had something of value, was defrauded by CBS into
relinquishing it for something of lesser value, and that the difference
between the two constituted Rather's pecuniary loss.
Rather's claim that, but for CBS' fraud, he could have had more
remunerative employment than that which he ultimately obtained at HDNet
is unavailing. "[T]he loss of an alternative contractual bargain [...]
cannot serve as a basis for fraud or misrepresentation damages because
the loss of the bargain was undeterminable and speculative.'" Lama, 88
N.Y.2d at 422, [*7]646 N.Y.S.2d at 80, quoting Dress Shirt Sales v.
Hotel Martinique Assoc., 12 N.Y.2d 339, 344, 239 N.Y.S.2d 660, 664, 190
N.E.2d 10, 13 (1963); see Geary v. Hunton & Williams, 257 A.D.2d 482,
684 N.Y.S.2d 207 (1st Dept. 1999).
Rather claims, based on his value and the value of similar professionals
in the industry, that he would have been paid $4 million annually from
2005 through 2010. However, while claiming that he had an
"agreement-in-principle" with CBS in the summer of 2004 to extend his
contract, he alleges in the amended complaint that he had an unwritten
"proposal" that "contemplated" a contract extension, and the terms of
the proposal were compensation of $4 million for the first 19 months and
$2 million annually thereafter. Rather admits that, the broadcast and
its aftermath aside, CBS was already contemplating that he would step
down from the anchor position in 2006 and assume a reduced role.
As to lost opportunities in the trade, while Rather has shown his own
track record of earnings and the earnings of other trade professionals,
his future earnings are speculative, because there is no basis to
conclude that his employment status would not have changed, regardless
of CBS's actions, once he determined to make the broadcast. Rather never
identified a single opportunity with specified terms that was actually
available to him and which he declined to accept because of CBS'
Even if Rather pled pecuniary loss sufficiently to satisfy the Lama
standard, his claim would nonetheless fail. Although allegations that
defendants made statements to the general public, for example, that they
falsely blamed Rather for alleged errors in the broadcast, may
constitute a defamation claim (see Morrison v. National Broadcasting
Co., 19 N.Y.2d 453, 458-459, 280 N.Y.S.2d 641, 644, 227 N.E.2d 572, 574
(1967)), they are time-barred. Furthermore, Rather's claim of under-use
merely recasts his breach of contract claim in terms of fraud. See
Wegman v Dairylea Coop., 50 A.D.2d 108, 113, 376 N.Y.S.2d 728, 734-735
(1975), lv. dismissed, 38 N.Y.2d 918, 382 N.Y.S.2d 979, 346 N.E.2d 817
(1976), and CBS's alleged promise to extend Rather's contract
constitutes a non-actionable statement of future intent. See Laura
Corio, M.D., PLLC v R. Lewin Interior Design, Inc., 49 AD3d 411, 412,
854 N.Y.S.2d 55, 56-57 (1st Dept. 2008).
Even if Rather had alleged "a breach of duty which is collateral or
extraneous to the contract between the parties" Krantz v Chateau Stores
of Canada, 256 A.D.2d 186, 187, 683 N.Y.S.2d 24, 25 (1st Dept. 1998)
(internal quotation marks and citations omitted), he failed to
adequately allege damages.
To the extent Rather claims that he should have been released from the
agreement earlier to pursue other opportunities, this claim is
duplicative of his breach of contract claim. See Non-Linear Trading Co.
v. Braddis Assoc., 243 A.D.2d 107, 118, 675 N.Y.S.2d 5, 13 (1st Dept.
1998). Similarly, Rather's claim for breach of the implied covenant of
good faith and fair dealing was properly dismissed by Supreme Court for
being duplicative of his breach of contract claim. See Canstar v. Jones
Constr. Co., 212 A.D.2d 452, 622 N.Y.S.2d 730 (1st Dept. 1995).
Finally, Supreme Court properly dismissed the claim of tortious
interference with a contract as against CBS and Viacom. First, CBS
asserts correctly that Viacom is not a proper party to this action.
Documentary evidence demonstrates that on December 31, 2005, Viacom
[*8](old Viacom) split into two publicly traded companies named Viacom
(new Viacom) and CBS Corporation, the latter retaining all of the
liabilities concerning CBS's broadcasting business. Thus, the motion
court correctly found that new Viacom carries no liability for old
Viacom's acts in this suit. Second, as to the claim against CBS, the
court correctly applied the economic interest doctrine to dismiss this
claim against the corporate defendant. See White Plains Coat & Apron
Co., Inc. v. Cintas Corp., 8 NY3d 422, 835 N.Y.S.2d 530, 867 N.E.2d 381
(2007). Rather's bare allegations of malice do not suffice to bring the
claim under an exception to the economic interest rule. See Ruha v.
Guior, 277 A.D.2d 116, 717 N.Y.S.2d 35 (1st Dept. 2000). Since on
appeal, Rather has not addressed his argument as to this cause of action
to the individual defendants, we deem the argument abandoned. In any
event, there is no particularized pleading of allegations that the acts
committed by the individual corporate employees were either beyond the
scope of their employment or motivated by their desire for personal
gain. See Petkanas v. Kooyman, 303 A.D.2d 303, 305, 759 N.Y.S.2d 1, 2
(1st Dept. 2003).
Accordingly, the judgment of the Supreme Court, New York County (Ira
Gammerman, J.H.O.), entered April 14, 2008, dismissing the complaint
asagainst the individual defendants, and bringing up for review an
order, same court and J.H.O., entered April 11, 2008, which, inter alia,
granted defendants' motion to dismiss the complaint to the extent of
dismissing the causes of action for fraud, breach of the implied
covenant of fair dealing, and tortious interference with prospective
business relations, and denied the motion to the extent it sought to
dismiss the causes of action for breach of contract and breach of
fiduciary duty, should be modified, on the law, to grant the motion to
dismiss the causes of action for breach of contract and breach of
fiduciary duty, and otherwise affirmed, with costs. Judgment, same court
and J.H.O., entered September 30, 2008, dismissing the amended complaint
as against Viacom, Inc. and dismissing the causes of action for fraud
and tortious interference with contract as against CBS Corporation, and
bringing up for review an order, same court and J.H.O., entered
September 23, 2008, which granted CBS and Viacom's motion to the extent
it sought to dismiss the causes of action for fraud and tortious
interference with contract and denied the motion to the extent it sought
to dismiss the cause of action for breach of fiduciary duty, should be
modified, on the law, to dismiss the remaining causes of action against
CBS, and otherwise affirmed, with costs. Plaintiff's appeals from the
aforesaid orders should be dismissed, without costs, as subsumed in the
appeals from the respective judgments. The Clerk is directed to enter
judgment in favor of [*9]defendant CBS dismissing the amended complaint
as against it.
Judgment, Supreme Court, New York County (Ira Gammerman, J.H.O.),
entered April 14, 2008, modified, on the law, to grant the motion to
dismiss the causes of action for breach of contract and breach of
fiduciary duty. Judgment, same court and J.H.O., entered September 23,
2008, modified, on the law, to dismiss the remaining causes of action
against CBS. Appeals from the aforesaid orders unanimously dismissed, as
subsumed in the appeals from the respective judgments.
Opinion by Catterson, J. All concur.
Gonzalez, P.J., Buckley, Catterson, McGuire, Renwick, JJ.
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: SEPTEMBER 29, 2008