Opinion
No. 1099–07.
2010-08-12
The BAJAN GROUP, INC., Plaintiff, v. CONSUMERS INTERSTATE CORPORATION, Defendant.
John G. McGowan and J.P. Wright, of counsel, Bond, Schoeneck & King, PLLC, Syracuse, for Plaintiff. Thomas D. Buchanan, of counsel, Hacker & Murphy, LLP, Latham, for Defendant.
John G. McGowan and J.P. Wright, of counsel, Bond, Schoeneck & King, PLLC, Syracuse, for Plaintiff. Thomas D. Buchanan, of counsel, Hacker & Murphy, LLP, Latham, for Defendant.
RICHARD M. PLATKIN, J.
Plaintiff The Bajan Group (“Bajan”) moves for an order: granting summary judgment on its breach of contract claims against defendant Consumers Interstate Corporation (“CIC”); dismissing all of CIC's counterclaims; and authorizing the entry of judgment against CIC in the amount of $113,180.94 plus accrued pre-judgment interest. CIC opposes Bajan's motion for summary judgment and cross-moves for an order increasing the ad damnum clause associated with its counterclaims from $500,000 to $1 million and for partial summary judgment on its counterclaims.
BACKGROUND
Bajan is a distributor of business documents, commercial printing, labels and nameplates (hereinafter “Printed Forms”). CIC also is in the business of distributing various types of paper supplies, including Printed Forms, janitorial packaging, office supplies and food service supplies.
On or about August 1, 1998, Bajan and CIC entered into an agreement (“the Agreement”) for CIC to promote and sell Bajan's Printed Forms to its customers. Pursuant to the Agreement, CIC obliged itself to use its best efforts to sell Bajan forms to its customers, and Bajan, in turn, agreed to fulfill said orders.
Under the Agreement, Bajan not only produced and delivered the Printed Forms, but also provided support to CIC customers who purchased Bajan forms (hereinafter “CIC Customers”). Thus, Bajan and CIC Customers communicated directly regarding orders and deliveries of Printed Forms. Further, with one exception, Bajan shipped all Printed Forms directly to CIC Customers.
Invoices for the Printed Forms were generated by Bajan, but sent to purchasers on CIC letterhead. CIC Customers remitted payment to CIC, which, in turn, paid Bajan. The summary bills sent by Bajan to CIC equaled the amount billed to CIC Customers minus the negotiated commission allocated to CIC for its role in the distribution process.
In addition to the foregoing, the Agreement included two covenants pertaining to competition and the solicitation of employees. First, the Agreement provided that “Bajan shall not solicit, or sell directly, to any [CIC] account.” Further, the Agreement included mutual covenants that prohibited either party from recruiting, hiring or contracting with any employee of the other party “at any time during the term of this Agreement, or within three years after this Agreement has ended.” By written Addendum made effective July 31, 2001 (“the Addendum”), the parties, among other things, broadened the latter covenant to prohibit the recruiting or hiring of the other party's “former employee[s]”.
Pursuant to the Agreement, CIC provided Printed Forms to several dozen of its customers, including Kidde Fenwal (“Kidde”). Bajan had direct contact with Kidde during the course of the Agreement, and Bajan's representative visited the company regularly to meet with Kidde managers and employees.
Bajan submits proof that in early September 2006, Bruce Crosier, a supply chain manager for Kidde, contacted the assigned Bajan customer service representative, LuAnn Mead, to request a meeting. On or about September 15, 2006, Mead met with Crosier and another Kidde employee, Mark Lynch. At this meeting, Bajan was advised that Kidde was looking to reduce its costs by moving further up the distribution chain. As a result, Kidde announced that it would no longer do business with CIC, which was two steps removed from the actual manufacturers of the Printed Forms. Bajan was further advised that Kidde would be bidding out its Printed Forms work and that CIC would not be eligible to bid.
According to Lombardo, Bajan subsequently engaged in follow-up correspondence with Kidde to confirm and clarify its intentions with respect to Printed Forms. Mindful of its obligations to CIC under the Agreement, Bajan also sought written confirmation from Kidde regarding its decision to cease doing business with CIC and to put its Printed Form business out to bid. By email dated September 29, 2006, Kidde advised as follows:
We would like [Bajan] to quote the current business that you[ are] engaged in with us. I have decided to move this business as close to the manufacturer as possible. This will eliminate the position that [CIC] is currently holding in the supply chain on this product set. We are quoting this business and [CIC] will not be invited to participate in the quoting process.
Bajan promptly informed CIC of this development. In response, CIC proposed to Bajan that they attempt to maintain Kidde as a CIC Customer by providing a cost reduction funded through a diminution in the commission provided to CIC. This issue was the topic of several emails and conversations between Kenneth Fischburg, the president of CIC, and Anthony L. Lombardo, Jr., the president of Bajan.
In early October 2006, Bajan met again with representatives of Kidde, who reiterated the company's desire to find a more cost-effective vendor of Printed Forms. At this meeting, Kidde also informed Bajan of its expectations regarding cost savings. On October 12, 2006, Kidde emailed CIC to advise that it would be purchasing Printed Forms from Bajan effective January 1, 2007. A written contract between Bajan and Kidde was executed on December 19, 2006 (“the Bajan/Kidde Contract”), which became effective on January 1, 2007.
Following further communications between the principals of Bajan and CIC, Bajan advised CIC, by letter dated January 31, 2007, of its intention to terminate the Agreement, effective thirty days thereafter. On the same date, counsel for CIC advised Bajan that it was terminating the Agreement effective immediately, based upon Bajan's direct contact with CIC Customers, allegedly in violation of the Agreement. A second letter from Bajan to CIC, dated February 2, 2007, stated that Bajan was terminating the Agreement immediately based upon CIC placing orders for Printed Forms with a supplier other than Bajan, an alleged material breach of the Agreement.
Bajan brought this action to recover the sum of $113,180.94, representing unpaid invoices for Printed Forms delivered to CIC Customers. The bulk of this amount comes from two unpaid summary bills sent by Bajan to CIC for orders filled in December 2006 and January 2007, totaling approximately $83,000. The remaining sum sought by Bajan arises from various invoices allegedly sent to CIC for Printed Forms provided to certain customers prior to termination of the Agreement. Plaintiff seeks judgment on theories sounding in breach of contract, as well as unjust enrichment and quantum meruit.
In its answer, CIC raises a host of affirmative defenses and alleges seven counterclaims against Bajan. For its first counterclaim, CIC claims that Bajan breached an agreement whereby CIC would be paid 12% of the Printed Forms business generated between Kidde and Bajan on a going forward basis in consideration for Bajan having secured a business relationship with Kidde due to CIC's efforts and CIC having refrained from negotiating directly with manufacturers to obtain the “second tier” distribution status required to maintain Kidde as a client. The second and third causes of action allege tortious interference with prospective and current business relationships. The fourth counterclaim alleges unjust enrichment based on CIC's efforts to develop a relationship between Bajan and Kidde. The remaining equitable counterclaims sound in promissory estoppel, quantum meruit and constructive trust.
ANALYSIS
It is well established that summary judgment is a drastic remedy and should only be granted if there are no material issues of disputed fact (Sillman v. Twentieth–Century Fox Film Corp., 3 N.Y.2d 395 [1957] ). In evaluating a motion for summary judgment, a court should simply determine whether material issues of disputed fact preclude the grant of judgment as a matter of law (S.J. Capelin Assoc. v. Globe Mfg. Corp., 34 N.Y.2d 338 [1974] ). The party moving for summary judgment has the initial burden of coming forward with admissible evidence to support the motion, so as to warrant the Court directing judgment in movant's favor; the burden then shifts to the opposing party to demonstrate, by admissible evidence, the existence of any factual issue requiring a trial of the action ( see Zuckerman v. City of New York, 49 N.Y.2d 557 [1980] ).
Bajan's first three causes of action sound in breach of contract. To establish a prima facie case that the Agreement was breached, Bajan must demonstrate four elements: (1) formation of a valid contract between the parties; (2) CIC's breach of the Agreement; (3) performance of the Agreement by Bajan; and (4) damages resulting from the breach ( see Clearmont Prop., LLC v. Eisner, 58 AD3d 1052, 1055 [3d Dept 2009] ).
The Court is satisfied that Bajan has presented a prima facie case of breach of the Agreement. There is no dispute that the Agreement and Addendum constitute binding legal agreements. Through the affidavit of Anthony Lombardo and the documentary evidence annexed to plaintiff's moving papers, Bajan has demonstrated that CIC breached its obligation to pay for Printed Forms delivered to CIC Customers. Further, Bajan's submissions demonstrate that it filled all orders for Printed Forms from CIC Customers prior to the termination of the Agreement and otherwise complied with its obligations.
At oral argument, CIC's counsel did not dispute Bajan's entitlement to judgment on its claims for affirmative relief, but argued that CIC is entitled to a set-off against any such award based on its counter-claims.
A. Breach of Contract
1. Commission Sharing Agreement
For its first counterclaim, CIC alleges that Bajan breached an agreement pursuant to which it would pay CIC an amount equal to 12% of the Printed Forms revenues generated from direct sales to Kidde on a going forward basis. According to CIC, Bajan agreed to make such payments in consideration for having secured a direct business relationship with Kidde as a result of CIC's efforts, as well as CIC having refrained from negotiating directly with other manufacturers of Printed Forms to obtain the “second tier” distribution status required to maintain Kidde as a client.
To succeed on this claim, CIC must establish, among other things, the formation of a binding and definite contract ( see Clearmont Prop., 58 AD3d at 1055). “In determining whether the parties entered into a contractual agreement and what were its terms, it is necessary to look ... to the objective manifestations of the intent of the parties as gathered by their expressed words and deeds (Brown Bros. Elec. Contrs. v. Beam Constr. Corp., 41 N.Y.2d 397, 399–400 [1977] ).
CIC has failed to come forward with proof demonstrating an objective manifestation of Bajan's assent to pay a 12% commission on direct sales to Kidde. While the record shows that CIC made offers to Bajan proposing such an arrangement, there is no proof establishing that Bajan accepted its offers. CIC acknowledges, as it must, that Bajan did not expressly agree to its proposal to pay CIC a 12% commission. Indeed, the emails and deposition testimony upon which CIC relies show that Bajan expressly declined to agree to an 8% commission for just the first year of the Bajan/Kidde Contract, explaining that its profit margins were insufficient. Bajan further advised CIC that in subsequent years, its margins on the Kidde account would not allow for any commission or rebate to be paid to CIC. Further, insofar as CIC relies upon Bajan's delay in responding to its offers, it is well established silence cannot be deemed an acceptance in the absence of a duty to speak (Gomez v. Bicknell, 302 A.D.2d 107, 116 [2d Dept 2002] ), and no such duty is implicated here.
At most, CIC's proof shows that Bajan agreed to “do what [it could]” in the first year of the Bajan/Kidde Contract to provide a rebate to CIC based on the “overall profitability in the [Kidde] account” in order to maintain its “good business relationship” with CIC (Lombardo Email of Dec. 12, 2006). “Where a promisor retains an unlimited right to decide later the nature or extent of his performance, the promise is too indefinite for legal enforcement. The unlimited choice in effect destroys the promise and makes it merely illusory” (Chiapparelli v. Baker, Kellogg & Co., 252 N.Y.192 [1929] ). Thus, Bajan's willingness to “do what [it] can” to provide rebates to CIC for one year as a gesture of goodwill falls short of demonstrating a binding legal contract capable of judicial enforcement.
Accordingly, insofar as defendant's counterclaim is directed at enforcing the alleged 12% commission/rebate agreement or other alleged promise by Bajan to pay a portion of Kidde revenues to CIC in the form of a rebate or commission, the Court concludes that CIC has failed to demonstrate the formation and existence of a binding legal contract.
2. Breaches of Agreement
In its motion papers and at oral argument, CIC also seeks to hold Bajan liable for breaches of the Agreement. CIC claims that Bajan breached the covenant against competition by soliciting and selling directly to CIC Customers, including Kidde. In response, Bajan argues that CIC is precluded from opposing its motion for summary judgment on the basis of an unpleaded counterclaim for breach of the Agreement.
As Bajan correctly observes, CIC's first counterclaim, alleging breach of contract, is expressly premised upon a breach of a subsequent agreement between the parties, made in or about October 2006, pursuant to which Bajan would provide CIC with a 12% commission on sales to Kidde on a going forward basis (Answer to Second Amended Complaint ¶ 19). However, since CIC's termination letter of January 29, 2007 specifically alleged that Bajan had breached the Agreement in this regard and this alleged breach was the subject of pre-trial discovery, Bajan would not be unfairly prejudiced or surprised by CIC's reliance on these unpleaded allegations. Nonetheless, even if the Court were consider these allegations, it concludes that CIC has failed to demonstrate that Bajan breached the Agreement.
As Bajan's entitlement to recover under a breach of contract theory necessarily implicates the issue of whether it “performed what [it] was obligated to do under the terms of the contract [and] was ready, willing and able to do all that the contract required” (Roberts v. Karimi, 251 F3d 404, 407 [2d Cir2001] ), CIC's unpleaded allegations regarding Bajan's breaches of the Agreement arguably are relevant to assessing plaintiff's entitlement to summary judgment. However, for the reasons set forth below, CIC has failed to demonstrate that Bajan materially breached the Agreement.
First, CIC argues that Bajan breached the Agreement when it engaged in the discussions and negotiations with Kidde in the Fall of 2006 that resulted in execution of the Bajan/Kidde Contract on December 19, 2006. CIC claims that these actions violate the covenant against Bajan “solicit[ing]” any CIC account.
In his affidavit, Bruce Crosier explains that as the Kidde manager responsible for overseeing and coordinating business relationships with the company's vendors, he “concluded that it would be more cost-effective for Kidde–Fenwal to move [its Printed Forms] business as close to the manufacturer as possible,” thereby “avoid[ing] multiple price mark-ups on products resulting from the products being sold through multiple middle-men' “ (¶ 5). “In anticipation of ending the business relationship between Kidde–Fenwal and CIC, [Crosier] contacted Bajan and instructed them that [Kidde] would be quoting the Printed [Forms business] and that CIC would not be invited to participate in the quoting process. [Kidde] also requested that Bajan submit quotes regarding the Printed [Forms] business” ( id.) Crosier goes on the aver that, “[p]rior to Kidde–Fenwal's decision to terminate its relationship with CIC, Bajan did not solicit, petition for, or otherwise request ... that Kidde–Fenwal discontinue its relationship with CIC” or otherwise “initiate contact with Kidde–Fenwal” to secure its direct business ( id. ¶ 8).
This testimony is confirmed in all material respects by the affidavit of Anthony J. Lombardo, Jr., sworn to on January 26, 2010. Mr. Crosier's account is further confirmed by the deposition testimony of LuAnn Mead, who testified that Kidde initiated the process of terminating its business relationship with CIC and sought to enter into direct business dealings with Bajan.
In asserting a violation of the covenant against solicitation based on the events leading up to execution of the Kidde/Bajan Contract, CIC does not offer proof in admissible form contradicting the version of events relied upon by Bajan.
Rather, CIC asserts that the covenant against competition was violated even if Kiddie initiated the foregoing dialogue. The Court disagrees.
CIC does contend, in sur-reply, that the Court should disregard the Crosier affidavit as inadmissible hearsay, arguing that because Mr. Croiser resides outside of the subpoena range of the New York courts, his testimony cannot be compelled at trial. CIC further complains that Bajan never sought his deposition during pre-trial discovery. The Court finds these contentions lacking in merit. CPLR 2309(c) permits a sworn statement taken outside the State to be treated as if it were taken in the State, and CIC does not allege a lack of compliance with this provision ( see Sparaco v. Sparaco, 309 A.D.2d 1029, 1031 [3d Dept 2003] [holding that failure to include a certificate authenticating the authority of the one administering the oath is not a fatal defect] ). Further, Bajan was not obliged to depose Mr. Crosier in order to give CIC's counsel the opportunity to cross-examine him; if CIC wanted to depose Mr. Crosier, it should have availed itself of the procedures established in the CPLR for obtaining discovery from individuals outside the State.
The fundamental, neutral precept of contract interpretation is that agreements are construed in accord with the parties' intent (Slatt v. Slatt, 64 N.Y.2d 966 [1985] ). “The best evidence of what parties to a written agreement intend is what they say in their writing” (Slamow v. Delcol, 79 N.Y.2d 1016, 1018 [1992] ). Thus, a written agreement that is complete, clear, and unambiguous on its face must be enforced according to the plain meaning of its terms ( see W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157, 162 [1990] ).
Here, the plain meaning of the term “solicit” connotes the act of requesting or seeking a particular object or end ( see Blacks Law Dictionary [8th ed 2004] ). Thus, in order for the non-solicitation clause to be violated, it must be shown that Bajan initiated contact with Kidde regarding direct sales (Mona Elec. Group, Inc. v. Truland Serv. Corp., 56 Fed Appx. 108, 110 [4th Cir2003] [“plain meaning of solicit' requires the initiation of contact”]; Wolverine Proctor & Schwartz, Inc. v. Aeroglide Corp., 402 F Supp 2d 365, 371 [D Mass 2005] [“There is plainly a real difference between the company initiating a telephone call or meeting with [the employee] and the [employee] initiating that contact himself” (internal citations and quotations omitted) ]; see NBT Bancorp v. Fleet/Norstar Fin. Group, 159 A.D.2d 902, 903 [1st Dept 1990] [“The complaint alleges that [certain directors] breached provisions requiring them to ... refrain from soliciting new offers.... It is not alleged, however, that the Board initiated contact with any person or entity in an attempt to secure an acquisition proposal. The only allegation apropos of other offers is that Central entertained defendants' offer which defendants initiated”] ). As the undisputed facts demonstrate that Kiddie initiated discussions with Bajan regarding direct sales, CIC has failed to establish that Bajan solicited Kidde.
Second, CIC claims that Bajan's sales of Printed Forms to Kidde prior to the parties' mutual termination of the Agreement, which occurred no later than February 2, 2007, runs afoul of the covenant prohibiting Bajan from making direct sales “to any [CIC] account”.
The Bajan/Kidde Contract became effective on January 1, 2007. As to sales made on and after such date,
the Court concludes that the covenant against direct sales to CIC accounts was not implicated because Kidde was no longer a customer of CIC. In reaching this conclusion, the Court relies first and foremost on the plain language of the Agreement, which restricts Bajan only from selling directly to “[CIC] accounts”. Notably, the Agreement does not restrict Bajan's ability to sell to “former” CIC accounts. This omission is particularly significant in light of the Addendum, which extended the covenant prohibiting the hiring of the other party's “employees” to also encompass “former employees”. Had the parties intended to preclude Bajan from soliciting or selling to former customer of CIC, they could easily have said so in the original Agreement or through an appropriate amendment. As the undisputed proof demonstrates that Kidde terminated its business relationship with CIC prior to January 1, 2007, the Agreement did not preclude Bajan from thereafter soliciting or selling directly to Kidde.
There is no proof of any direct sales by Bajan to Kidde prior to 2007. While defendant relies upon an interrogatory response setting forth the date of the first direct sale to Kidde as November 2, 2006, that response subsequently was amended pursuant to CPLR 3101(h) to correct an error resulting from a miscommunication between Anthony Lombardo and a former associate with Bajan's law firm. Other than the withdrawn interrogatory response, there is no proof that any direct sales were made prior to the effectiveness of the Kidde/Bajan Contract.
Third, CIC contends that Bajan's solicitation and sales to CIC Customers following the parties' mutual agreement to terminate the Agreement on or about February 2, 2007 represents a breach of the Agreement. Bajan disagrees, arguing that all of its obligations under the Agreement ceased upon its termination, with the sole exception of the covenant prohibiting either party from recruiting, hiring or contracting with any current or former employee of the other party, which, by its terms, continued for “three years after th[e] Agreement has ended”. CIC, however, argues that the Agreement establishes a perpetual covenant that prohibits Bajan from soliciting or selling directly to CIC Customers, notwithstanding the termination of the Agreement.
The Court concludes that the Agreement does not impose contractual post-termination restrictions against competition upon Bajan. There is nothing in the plain language of the parties' Agreement that obliges Bajan to refrain from competition following the termination of the Agreement or otherwise manifests a mutual intention to take this covenant outside of the general rule that contractual obligations do not survive the termination of the agreement in which they are contained. Indeed, in the one instance where the parties intended to impose obligations that would survive the termination of the Agreement, they said so expressly. Thus, in establishing post-termination restrictions against the hiring of the other party's current or former employees, the Agreement states that such restrictions shall remain in effect for the three years following the expiration of the Agreement. Further, defendant's interpretation of the Agreement runs afoul of the rule that a covenant against competition “must be construed strictly and should not be extended beyond the literal meaning of its terms” ( see Battenkill Veterinary Equine P.C. v. Cangelosi, 1 AD3d 856, 858 [3d Dept 2003] ).
Moreover, defendant's proposed interpretation of the Agreement as restricting in perpetuity Bajan's ability to compete for the business of CIC's Printed Forms customers would raise significant enforceability concerns. After all, even in commercial contracts between sophisticated business entities, a covenant against competition is subject to a rule of reason that requires courts to balance the competing public policies in favor of robust competition and freedom to contract (DAR & Assoc., Inc. v. Uniforce Servs., Inc., 37 F Supp 2d 192, 197 [EDNY 1999]; see Baker's Aid v. Hussmann Foodservice Co., 730 F Supp 1209, 1214 [EDNY 1990] ).
In apparent recognition of the foregoing, CIC invites the Court to “fill in a reasonable term” that would establish the duration of the alleged post-termination covenant against competition. The Court must decline this invitation. As explained above, the plain language of parties' Agreement fails to impose post-termination obligations against soliciting or selling to CIC Customers, while at the same time expressly imposing other obligations that survive termination of the Agreement. Moreover, it would be inappropriate for the Court to rewrite the terms of the Agreement in the guise of interpretation ( see Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 NY3d 470 [2004] ). This is not a case, as CIC argues, “where time for performance is unstated in an agreement, [and t]he law supplies the missing term and imposes what is reasonable” (Matter of Nedd v. Koehler, 159 A.D.2d 344 [1st Dept 1990] [internal quotations omitted] ). Rather, CIC seeks to have the Court add a new and different substantive term that the parties neglected or refused to include in their Agreement.
Finally, in concluding that CIC has failed to raise a triable issue of fact regarding Bajan's performance of its obligations under the Agreement, the Court notes that it sees no ambiguity in the Agreement that would call for consideration of extrinsic evidence. Whether an agreement is ambiguous is a question of law to be determined by the Court ( see Van Wagner Adv. Corp. v. S & M Enters ., 67 N.Y.2d 186, 191 [1986] ). Ambiguity must be determined by looking within the four corners of the document, rather than through consideration of extrinsic sources ( see W.W.W. Assoc., 77 N.Y.2d at 162–163). “[P]rovisions in a contract are not ambiguous merely because the parties interpret them differently” (Mount Vernon Fire Ins. Co. v. Creative Hous., 88 N.Y.2d 347, 352 [1996] ). As the Court sees no ambiguity within the four corners of the Agreement, it therefore has no basis to consider the extrinsic evidence regarding the party's intentions in entering into the Agreement.
B. Interference With Prospective Advantage
CIC's second counterclaim alleges tortious interference with prospective business relations in connection with Kidde and other former CIC Customers. To succeed on such a claim, CIC must demonstrate that Bajan used “wrongful means” or was motivated by malice. Where there has been no breach of an existing contract, but only interference with prospective contract rights, it must be shown that the conduct at issue amounted to a crime or an independent tort (Carvel Corp. v. Noonan, 3 NY3d 182, 189–190 [2004] ). “Conduct that is not criminal or [independently] tortious will generally be insufficiently culpable' to create liability for interference with prospective contracts or other nonbinding economic relations” ( id .).
The record here is devoid of proof that Bajan engaged in criminal conduct or that it was motivated by malice or anything other than pursuit of its own economic self interest. In seeking to demonstrate that Bajan engaged in tortious conduct, CIC appears to contend that Bajan breached a fiduciary duty. However, CIC does not assert a counter-claim seeking affirmative relief upon such a claim. Nonetheless, even assuming that CIC's unpleaded allegations are properly before the Court, the record fails to establish that Bajan engaged in independently tortious conduct that could form the basis of a claim of interference with prospective business advantage.
In EBC I, Inc. v. Goldman Sachs & Co. (5 NY3d 11, 19–20 [2005] ), the Court of Appeals offered the following guidance:
A fiduciary relationship exists between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation.... Such a relationship, necessarily fact-specific, is grounded in a higher level of trust than normally present in the marketplace between those involved in arm's length business transactions.... Generally, where parties have entered into a contract, courts look to that agreement “to discover the nexus of the parties' relationship and the particular contractual expression establishing the parties' interdependency.... If the parties do not create their own relationship of higher trust, courts should not ordinarily transport them to the higher realm of relationship and fashion the stricter duty for them.... However, it is fundamental that fiduciary liability is not dependent solely upon an agreement or contractual relation between the fiduciary and the beneficiary but results from the relation. ( internal citations omitted ). Applying these principles, the Court of Appeals held that while the relationship between an issuer of securities and an underwriter is “an arm's length commercial relation from which fiduciary duties may not arise”, the underwriter's non-contractual role as an “expert advisor” to their clients on market conditions alleged a fiduciary relationship sufficient to survive a motion to dismiss ( id. at 21–22).
CIC relies principally upon AHA Sales, Inc. v. Creative Bath Prods., Inc. (58 AD3d 6 [2d Dept 2008] ) in support of its contention that, in addition to the contractual duties set forth in the Agreement and Addendum, the parties' relationship also gave rise to fiduciary duties. While recognizing that “a conventional business relationship, without more, is insufficient to create a fiduciary relationship”, the Second Department found the complaint in AHA Sales to sufficiently allege the existence of a fiduciary relationship ( id. at 21–22). Specifically, the Court relied upon allegations that: the plaintiff had been induced to continue serving as its sales representative for many years, for the most part without a written contract, through representations that he could trust and rely upon defendants; the plaintiff refrained, at defendants' insistence, from forming other contractual relationships with defendants' competitors; and defendants' demand that plaintiff render uncompensated services as a contribution to their “venture” ( id. at 22). Under all of these circumstances, the Second Department determined that this “long enduring relationship was born a special relation of trust and confidence, one which existed independent of [any] contractual duties” ( id.).
Notably, both EBC I and AHA Sales involved motions to dismiss under CPLR 3211(a)(7), where the facts alleged in the complaint must be deemed true and the plaintiff accorded the benefit of all reasonable inferences. Here, on summary judgment, it is CIC's obligation to lay bare its proof and submit evidence sufficient to allow a reasonable trier of fact to find that a fiduciary relationship had been established. For the reasons that follow, CIC has failed to meet this burden and raise a triable issue of fact as to the existence of special relationship that would take this case outside the general rule that an arms-length contractual relationship between commercial parties does not give rise to a fiduciary duties.
Both parties to this action are established commercial businesses engaged in the distribution of paper products. As Kenn Fischburg, the president of CIC acknowledges, “[i]n the absence of a contractual agreement stated otherwise, [CIC is] a direct competitor of The Bajan Group, Inc.” (Fischburg Aff. ¶ 5). And the distribution of paper products is itself a “highly competitive” industry ( id.¶ 6). Nonetheless, these putative competitors identified a mutually beneficial opportunity for CIC to expand into the sales of Printed Forms and for Bajan to increase its sales of Printed Forms through CIC's distribution channel. Accordingly, they negotiated a comprehensive written contract establishing their business relationship and setting forth the specific duties and obligations of each of the parties.
Further, many of the factors relied upon by the Second Department in AHA Sales to support a finding of a fiduciary relationship are absent here. Thus, there is no proof here that Bajan induced CIC to rely upon non-contractual or extra-contractual promises. Nor is there proof that CIC refrained from entering into other business relationships concerning Printed Forms for any reason other than its contractual duties to Bajan under the Agreement. And while the parties' relationship involved the disclosure of certain proprietary information,
the parties' Agreement and Addendum contains freely negotiated protections, including prohibitions on solicitation, direct sales and the hiring of present or former employees. Moreover, there is no proof that CIC was dependent upon Bajan in any way other than that prescribed in the parties' contractual arrangement, that Bajan exercised discretionary functions under the Agreement for the benefit of CIC, or that Bajan possessed superior expertise upon which CIC reasonably relied.
The Court notes that under New York law, customer “lists are generally not considered confidential unless information contained therein is not known in the trade and discoverable only through extraordinary efforts” (Battenkill Veterinary Equine v. Cangelosi, 1 AD3d 856, 858 [3d Dept 2003]; see H. Meer Dental Supply Co. v. Commisso, 269 A.D.2d 662 [3d Dept 2000] ).
Accordingly, while Mr. Fischburg alleges, in highly conclusory fashion, that the parties had a “a confidential relationship with a high level of trust”, his affidavit and the other proof submitted by CIC fall short of what is necessary to impute a special relationship of trust and confidence that would transform an arms-length commercial relationship into that of a fiduciary relationship.
In the absence of proof demonstrating that Bajan's alleged interference with CIC's prospective advantage was done through means that are criminal, independently tortious or purely malicious, the second counterclaim must be dismissed.
Further, to succeed on its second counterclaim, CIC would have to demonstrate that alleged wrongful means applied by Bajan were the proximate cause of the rejection of CIC's proposed contractual relationships. With respect to Kidde, the proof unequivocally demonstrates that Kidde would not have continued its contractual relations with CIC, a third tier distributor. Indeed, Kidde stated that it would not even allow CIC to bid on its work.
C. Interference With Contract
For its third counterclaim, CIC alleges tortious interference with contract. To succeed on this claim, CIC “must show the existence of its valid contract with a third party, defendant's knowledge of that contract, defendant's intentional and improper procuring of a breach, and damages” (White Plains Coat & Apron Co. v. Cintas Corp., 8 NY3d 422 [2007] ). “Where there has been no breach of an existing contract, but only interference with prospective contract rights,” a cause of action for tortious interference with contract will not lie (NBT Bancorp v. Fleet/Norstar Fin. Group, 87 N.Y.2d 614, 621 [1996] ).
CIC does not allege or offer proof that Kidde breached its contract with CIC. Rather, the undisputed proof shows that Kidde terminated the contract in writing, as it was authorized to do.
Likewise, the contracts with other CIC Customers were terminable at the customers' will, and therefore, there is no proof of any breach. Accordingly, this claim must be dismissed.
And as stated above, even if there were a breach of the Kidde agreement, there is no proof of inducement by Bajan. Rather, the record demonstrates that the decision to discontinue business with CIC was a business decision made solely by Kidde to further its own economic interest in obtaining supplies at a lower cost.
D. Unjust Enrichment
Defendant's fourth counterclaims alleges that CIC used its best efforts to foster a relationship between Kidde and Bajan and, as a result, Bajan has been unjustly enriched.
“The theory of unjust enrichment lies as a quasi-contract claim. It is an obligation imposed by equity to prevent injustice, in the absence of an actual agreement between the parties concerned” (IDT Corp. v. Morgan Stanley Dean Witter & Co., 12 NY3d 132 [2009] [internal citations and quotations omitted] ). “A cause of action for unjust enrichment requires a showing that (1) the defendant was enriched, (2) at the expense of the plaintiff, and (3) that it would be inequitable to permit the defendant to retain that which is claimed by the plaintiff. The essence of such a cause of action is that one party is in possession of money or property that rightly belongs to another” (Clifford R. Gray, Inc. v. LeChase Constr. Servs., LLC, 31 AD3d 983 [3d Dept 2006] ).
CIC has failed to demonstrate that Bajan was enriched at its expense or that it would be inequitable for Bajan to retain what is claimed by CIC. The record establishes that Kidde determined that it would no longer do business with third-tier distributors such as CIC. As such, any benefit conferred upon Bajan did not come at CIC's expense. Moreover, there is no proof that Kidde's decision to stay with Bajan was related in any way to CIC's alleged efforts; the only proof before the Court is to the contrary. Nor is there proof that the actions allegedly taken by CIC to foster a relationship between Kidde and Bajan—which appear to amount to an email or two pointing out the advantages associated with continuing to do business with Bajan—were done at Bajan's request. As such, there is nothing inequitable about Bajan retaining a benefit derived from CIC's voluntary efforts ( see id. at 988).
Further, CIC's efforts on behalf of Bajan, however limited they might be, were by no means gratuitous or altruistic; rather, CIC worked thereafter to implement an arrangement with Bajan that would allow them to remain involved with the Kidde account or to otherwise obtain a commission or rebate from Bajan on Kidde sales.
E. Promissory Estoppel
For a fifth counter-claim, CIC alleges a cause of action for promissory estoppel. “To establish a promissory estoppel it must be shown that [Bajan] made a clear and unambiguous promise upon which [CIC] reasonably relied to [its] detriment” (Clifford R. Gray, Inc. v. LeChase Const. Servs., LLC, 51 AD3d 1169, 1170 [3d Dept 2008] [internal quotations omitted] ).
In its complaint, CIC alleges that Bajan should be estopped from denying the existence of an agreement to pay CIC 12% of all direct business between Bajan and Kidde. As explained supra, however, there is no “clear and unambiguous” promise on the part of Bajan to pay CIC any fixed percentage of its Kidde revenues; at most, Bajan merely agreed to “do what [it] can” in the first year of the Bajan/Kidde Contract to provide a rebate to CIC based on the “overall profitability in the [Kidde] account”. Further, CIC does not and cannot demonstrate that it reasonably relied upon this patently indefinite promise.
In its memorandum of law, however, CIC appears to argue that this cause of action “applies only if the Court finds that the noncompete provision does not apply when the Agreement was canceled by the parties. To the extent that Bajan's conduct falls outside of the written Agreement post January 2007, the promissory estoppel provides adequate recompense” (Memorandum of Law, at 26). Apart from the fact that CIC's theory once again relies upon unpleaded allegations at odds with the counterclaims it actually asserts, this argument is flawed because there is no proof of a clear and unambiguous promise by Bajan to refrain from post-Agreement competition. Rather, the only mutual agreements on this point are those set forth in the parties' comprehensive written Agreement. In the absence of such a promise, there is no basis for invocation of an estoppel.
F. Quantum Meruit
CIC's sixth counter-claim seeks recovery in quantum meruit, but its pleadings do not detail the legal basis of this claim. Insofar as the parties' Agreement and Addendum cover the subject matter for which CIC seeks recovery, its quasi-contractual claim is precluded ( see IDT, 12 N.Y.2d at 142). Insofar as this claim is grounded upon an alleged promise by Bajan with respect to the sharing of revenues from Kidde, the Court concludes that it must be dismissed for substantially the same reasons as the fourth and fifth counterclaims.
G. Constructive Trust
Finally, the seventh counterclaim alleged by CIC is for constructive trust. Imposition of a constructive trust is less a cause of action than it is an equitable remedy ( cf. Consumers Union of the U.S., Inc. v. State, 5 NY3d 327, 347 n.14 [2005] ). Entitlement to this type of equitable relief generally requires a showing of four elements: a confidential or fiduciary relationship; a promise, express or implied; a transfer in reliance on that promise; and unjust enrichment (Salatino v. Salatino, 64 AD3d 923, 924 [3d Dept 2009] ). For the reasons stated above, the Court finds that none of these elements are present here. Accordingly, this counterclaim must also be dismissed.
CONCLUSION
Based on the foregoing, the Court concludes that Bajan has established an entitlement to judgment as a matter of law on its cause of action for breach of contract and for dismissal of CIC's counterclaims.
Accordingly,
The Court has considered defendant's remaining arguments and contentions and finds them unavailing.
ORDERED that plaintiff's motion for summary judgment on its first, second and third causes of action is granted; and it is further
ORDERED that plaintiff's motion for summary dismissal of defendant's counterclaims is granted; and it is further
ORDERED that defendant's cross-motion for summary judgment is denied in all respects; and it is further
ORDERED that defendant's motion to increase its ad damnum clause is denied as academic; and it is further
ORDERED that plaintiff is entitled to enter judgment in the amount of $113,180.94, plus accrued pre-judgment interest from March 1, 2007.
This constitutes the Decision and Order of the Court. The original Decision and Order is being transmitted to plaintiff's counsel; all other papers are being filed with the County Clerk. The signing of this Decision and Order shall not constitute entry or filing under CPLR Rule 2220. Counsel is not relieved from the applicable provisions of that Rule respecting filing, entry and Notice of Entry.