Grappo v. Alitalia Linee Aeree Italiane, S.p.A.

Citations: 975 F. Supp. 297; 1997 U.S. Dist. LEXIS 12762; 1997 WL 527342Docket: No. 93 Civ. 8810 (CBM)

Court: District Court, S.D. New York; August 18, 1997; Federal District Court

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Plaintiff Gary Grappo is a Florida resident with over ten years of experience in human resources and customer service training, as well as being an author of business-related literature. He developed a customer service training program called "Guest*Star" in 1988, aimed at fostering a service-oriented culture within organizations. The program's implementation involves conducting surveys to identify organizational strengths and weaknesses, analyzing the results, and training employees based on senior management feedback.

Grappo applied for a managerial position at Alitalia in late 1991, but his application was initially rejected. However, in January 1992, Alitalia contacted him about a position involving the implementation of a customer service training program from another company, Systema. After interviewing with Personnel Manager Gianfranco Bianchi and another employee, Grappo was hired and began working with Alitalia at the end of February 1992. Bianchi has since retired from Alitalia.

Defendant Alitalia discontinued the implementation of the Systema program due to high costs shortly after the plaintiff joined the company. Plaintiff proposed the Guest*Star program as a more cost-effective alternative. Following this, defendant Bianchi arranged for a presentation of Guest*Star at Alitalia’s headquarters in Rome, but no compensation promises were made at that time. After positive feedback from the directors in Rome, plaintiff was asked to present the program to North American directors, again without any compensation commitments.

In June 1992, plaintiff submitted a formal proposal for Guest*Star, requesting a promotion to “Level One Status,” an $80,000 salary, a $120,000 project bonus, and a computer. Bianchi responded that Alitalia could not meet the $120,000 request, suggesting $50,000 instead, and promised to consult with Mr. Carli regarding the proposal. In July 1992, Bianchi instructed plaintiff to begin tailoring the Guest*Star program but had not yet discussed it with Carli.

In October 1992, Bianchi informed plaintiff that final approval had been granted for a $50,000 payment, a promotion to Level One, and a computer, contingent on implementing the Guest*Star program. While these terms were never formalized in writing, a letter from Bianchi and Corallo on November 13, 1992, confirmed plaintiff’s promotion and increased salary from $4,000 to $4,835 per month. Additionally, the $50,000 payment was included in budget documents for fiscal year 1993, although it was noted that Alitalia’s top officials only reviewed a summary version of the budget that omitted smaller expenditures.

Alitalia's 1993 North America budget was approximately $10 million. The court found defendant Bianchi's testimony denying a promise to pay the plaintiff $50,000 unconvincing, especially since the plaintiff's initial demand was $120,000, suggesting that a significant commitment was necessary for the plaintiff to invest time in tailoring the Guest*Star project. The $50,000 figure closely matched the plaintiff's annual salary, making it unlikely that the parties would engage in a non-binding “gentlemen’s agreement.” Additionally, Bianchi's allocation of $50,000 in his budget and discussions with superiors contradicted his claims of no promise made.

Bianchi's assertion that he lacked authority to contract the $50,000 payment without approval from Alitalia's headquarters was also deemed not credible. He presented conflicting arguments regarding budget approval, leading the court to conclude that he had the authority to finalize the agreement. Even if he lacked actual authority, Alitalia would still be responsible for Bianchi's representations, as he had discretion over reimbursement policies and was the plaintiff's direct supervisor.

Furthermore, the court determined that Bianchi and other Alitalia officers intended in good faith to implement Guest*Star in North America. The plaintiff began working on the project in October 1992, conducting surveys that were distributed on October 26, 1992, and subsequently analyzed the survey results to create a report in early November.

The report regarding the Customer Comes First program was presented to Alitalia’s North American managers in December 1992. Following their feedback, the plaintiff created a training manual and instructor’s guide, completing the final version in January 1993. A pilot group was trained later that month. The plaintiff testified to investing hundreds of hours in preparing the program, with approximately 25 hours of personal time spent weekly over 14 weeks, totaling about 360 hours. The court deemed this testimony credible and calculated the reasonable value of the plaintiff's services at $13,908.88, using a multiplier due to the work being performed during leisure time.

In addition to the Customer Comes First program, the plaintiff assisted Ms. Irene DiNola in translating a training manual for personnel in Italy and provided her with monthly briefings on his program. In February 1993, during a meeting to introduce the final manual to Alitalia management, it was announced that the plaintiff's program would be terminated in favor of DiNola's program, following the hiring of a new senior vice-president who preferred her approach. The court found no significant overlap between the plaintiff's program and DiNola's manual, concluding that the ideas were not merely paraphrased and that the plaintiff had a prior involvement in translating DiNola's work. The plaintiff's objections were deemed unsubstantiated.

The court deemed the testimony of the plaintiff's expert on the reasonable value of the plaintiff's program as not credible, estimating its value between $150,000 and $250,000. This valuation was questioned because the plaintiff was willing to offer the product to Alitalia for significantly less, between $30,000 and $50,000. Additionally, the expert's evaluation was based on a review of Ms. DiNola's training program, having only seen "Customers Come First" shortly before his testimony. Although Alitalia did not utilize the plaintiff's program, it received some benefit from the plaintiff's extensive surveys, which were shared with Alitalia's personnel and discussed with top managers, reflecting the company's interest in service culture.

In terms of legal conclusions regarding breach of contract: 
1. Defendant Bianchi had actual authority to authorize an agreement for the plaintiff to customize the Guest*Star system in exchange for a payment of $50,000 from Alitalia.
2. If Bianchi lacked actual authority, he possessed apparent authority, as the principal contributed to the appearance of authority and the third party reasonably relied on him.
3. The contract in question is classified as a sale of personal property, and under UCC § 1-206(1), oral contracts for personal property exceeding $5,000 cannot be enforced, limiting the plaintiff's compensation for breach of contract to $5,000.

A party to an unenforceable contract due to the Statute of Frauds can recover quantum meruit damages for partial performance. Numerous cases support that if one party performs their obligations under such a contract, they may claim the value of their performance from the non-performing party. This principle is particularly relevant in land sales, where a purchaser may reclaim any deposit made if the contract does not meet the Statute of Frauds. The defendants argue that they owe nothing to the plaintiff because the contract is unenforceable, despite having benefited financially from the plaintiff's idea. However, the cases cited by the defendants do not support their assertion, as they concern valid contracts where quantum meruit recovery is precluded. The Second Circuit has confirmed that a plaintiff can recover quantum meruit even when a contract is barred by the Statute of Frauds. Under New York law, to recover on a quantum meruit basis, a plaintiff must demonstrate: 1) good faith performance of services, 2) acceptance of those services, 3) expectation of compensation, and 4) the reasonable value of the services. Recovery under quantum meruit does not allow the plaintiff to benefit from the contract, but rather aims to restore them to their pre-contractual position.

Plaintiff is entitled to recover quantum meruit damages, even if the defendant does not benefit from the services provided. The court found that the plaintiff established all four elements necessary for this claim and determined the reasonable value of the plaintiff's services from October 1992 to February 1993 to be $13,908.88. However, the plaintiff cannot recover for work performed prior to October 1992, as there was no clear expectation of payment at that time. Only after an explicit promise of payment in October 1992 could the plaintiff justifiably expect compensation. Therefore, the value of the plaintiff's work on Guest*Star is $13,908.88, but considering a $5,000 recovery under contract law due to the Statute of Frauds, the amount necessary to restore the plaintiff to his pre-contract position is $8,908.88. Furthermore, the court found no evidence of fraud by the defendants, Bianchi and Alitalia, ruling that a cause of action for fraud does not exist. Consequently, judgment will be entered in favor of the plaintiff for $13,908.88.