Opinion
14573/2007.
October 7, 2008.
Roe Taroff Taitz Portman, LLP, Patchogue, New York, Attorney for Plaintiff.
Craig S. English, Esq., New York, New York, Attorney for Defendant.
ORDERED , that the motion (motion sequence number 001) by plaintiff for partial summary judgment is denied; and it is further
ORDERED , that the cross-motion (motion sequence number 002) by defendant for summary judgment dismissing the Verified Complaint is granted to the extent indicated herein below and otherwise, denied; and it is further
ORDERED , that a compliance conference is scheduled for November 5, 2008 at 9:30 a.m. before the undersigned.
This is an action by plaintiff, Bimini Boat Sales, Inc., seeking relief under Article 38 of the General Business Law as it regulates the relationship between vessel (boat) manufacturers and boat dealers. Article 38 was only recently enacted, in 2005, and it appears that there are no reported cases interpreting the various provisions contained within this Article. Plaintiff also seeks damages for breach of warranty, loss of business, damage to business reputation, costs and attorney's fees.
Plaintiff does business under the name "Oakdale Boat Center".
The submissions reflect that plaintiff, a boat dealer, and defendant, a boat distributor and manufacturer, had a business relationship, wherein, on or about July, 2005 they entered into a "Dealer Agreement", pursuant to which plaintiff was to act as a dealer for defendant's boats, and was to purchase new vessels from defendant for resale to the general public. The Dealer Agreement had a term commencing August 1, 2005 and ending July 31, 2006 and specifically provided that it was not automatically renewable and no notice of termination was required to be given by either party. Dealer Agreement at Article 3. As relevant to the motions subjudice, the Dealer Agreement had the following additional provisions regarding termination or expiration of the agreement:
Prior to the entry of the 2005 Dealer Agreement, plaintiff was a dealer of defendant's boats since 2000.
ARTICLE 7 — EFFECTS OF TERMINATION OR EXPIRATION
A Should this Agreement be terminated pursuant to its terms or expire at the end of the TERM, DEALER shall have no recourse of any nature except as specifically provided herein. DEALER hereby expressly waives and forfeits all its rights, if any, of or to indemnification, payment of damages and other compensation by, from or against LUHRS under applicable law, which rights arise out of, are in connection with or are based upon the termination or expiration of the Agreement.
B. In the event that the Agreement is terminated or expires, LUHRS shall have the sole and exclusive option, exercisable by it within 30 days after such termination or expiration, to repurchase from DEALER at the price paid by DEALER (excluding any custom duties, discounts, taxes, and actual freight charges), any of the CURRENT PRODUCTS, i.e., products manufactured by LUHRS during the term of this Agreement, then owned by DEALER, but less a discount of 10% for depreciation and handling. DEALER shall sell and deliver such PRODUCTS to LUHRS upon demand and tender of payment therefore by LUHRS. LUHRS shall not be required to repurchase any CURRENT PRODUCTS unless required by the law of the state in which DEALER is located, and any such requirement shall be limited to the provisions of said law. In no event shall LUHRS repurchase any products not manufactured by LUHRS during the term of this Agreement.
Plaintiff commenced this action by the filing of a Summons and Verified Complaint on May 9, 2007 and issue was joined by defendant's service of a Verified Answer dated July 20, 2007. According to plaintiff, in July of 2005, it placed an order with defendant for a 2006 model year Luhrs "41 Open" vessel for a price of $527,000 (the "41 Open"). Plaintiff alleges that when it attempted to take delivery of the 41 Open in Florida in October of 2006, it found numerous defects and left the boat with defendant for repairs. Subsequently, plaintiff claims that although it still found defects in the 41 Open, the parties agreed that defendant would repair the boat when it reached New York. Thereafter, although certain warranty repairs were made, according to plaintiff, there were still many deficiencies that were not repaired.
Plaintiff alleges that the Dealer Agreement "expired by its own terms", at which point plaintiff still had six of defendant's boats in its inventory, including the 41 Open. Plaintiff states that the parties worked together and were able to place 5 of the 6 of defendant's boats with other dealers, but not the 41 Open. Plaintiff states that defendant refused to re-purchase the 41 Open and because of what it claims were numerous defects, it was unable to sell the vessel to a third party because it failed the survey by the buyer's marine surveyor. Thereafter, in February of 2007, plaintiff submitted an estimate to defendant detailing approximately $63,000 in repairs to the 41 Open allegedly needed to make the vessel merchantable. In March of 2007, defendant sent a naval architect to inspect the boat and assess which of the items were warranty issues and which were wear and tear/maintenance issues. When the parties could not agree on the repairs and/or repurchase of the vessel by defendant, plaintiff commenced the instant action.
Pursuant to the Dealer Agreement, the boats purchased by plaintiff were financed by a third-party vendor pursuant to a "floor plan".
During this time, plaintiff was paying interest charges on the 41 Open pursuant to the floor plan.
The gravamen of the fifteen causes of action of the Verified Complaint is that defendant sold plaintiff a boat (the 41 Open) that was unmerchantable and not fit for its intended use because of its design and manufacturing defects and defendant failed to timely perform the repairs needed to bring the boat up to specifications as a new boat. Additionally, plaintiff alleges that defendant refused to repurchase the 41 Open on the expiration and non-renewal of the Dealer's Agreement and with regard to the other vessels in plaintiff's inventory at the time of the expiration of the Dealer's Agreement, defendant failed and refused to pay the shipping costs associated with the purchase of said vessels. All of these claims arise out of GBL Article 38. Moreover, plaintiff alleges that defendant breached the Dealer's Agreement by failing to compensate plaintiff for certain incentives and warranty work and that it is entitled to interest and attorneys' fees. Finally, plaintiff seeks damages for loss of business and damage to its reputation.
The relevant provisions of the General Business Law are as follows:
§ 811. Repurchase of vessels and parts.
Upon the termination, cancellation or non-renewal of any dealer agreement, except as otherwise provided in subdivision one of section eight hundred twelve of this article, by a manufacturer or distributor pursuant to this article the new vessel dealer shall be paid the dealer invoice price plus any shipping costs paid by such dealer for:
1. new current and previous model year vessels and motors in the dealer's inventory which were purchased from the manufacturer or distributor, within twelve months of the delivery date for each vessel and motor, and which are unused, and not materially damaged or altered while in the dealer's possession, and to which the dealer has clear title and is in position to convey such title to the manufacturer or distributor;
§ 812. Termination or renewal of agreement.
3. If a manufacturer or distributor terminates a dealer agreement as a result of any action, except as otherwise provided in subdivision one of this section, the manufacturer or distributor shall repurchase the inventory as provided in section eight hundred eleven of this article. The dealer may keep the inventory if it desires, and the manufacturer agrees in writing. If the dealer has any outstanding debts to the manufacturer or distributor, then the repurchase amount may be adjusted by the manufacturer to take into account such unpaid debts.
4. After written notice by the dealer to the manufacturer by registered or certified mail or statutory overnight delivery, return receipt requested, within thirty days of the termination of the dealer agreement, the manufacturer or distributor shall repurchase that inventory previously purchased from the manufacturer or distributor as provided in section eight hundred eleven of this article, except as otherwise provided in subdivision one of this section.
§ 813. Vessel preparation, warranty and warranty reimbursement.
If a manufacturer or distributor requires or permits a dealer to provide parts or to perform labor to satisfy a warranty created by the manufacturer or distributor, the manufacturer or distributor shall:
(a) properly and promptly fulfill its warranty obligations;
(b) adequately and fairly compensate the dealer for any parts provided, the shipping costs for parts provided and labor performed by the dealer to satisfy the warranty on a vessel, including the hull, motor/engine, component parts, spars, sails and accessories;
§ 815. Penalties.
1. Any manufacturer or distributor found to have violated any provision of section eight hundred thirteen of this article shall be liable to the dealer for all reimbursement required by such section and interest thereon at the rate of prime plus three percent per annum that such amount was due and owing pursuant to such section.
2. Every manufacturer or distributor found to have violated any provision of this article shall be liable to the dealer for any financial injury or other damage suffered by such dealer as a result of such violation, and court costs and reasonable attorney's fees.
Plaintiff now moves for summary judgment under Article 38 of the General Business Law and in the alternative, under Article 2 of the Uniform Commercial Code. Specifically, plaintiff asserts that pursuant to Article 38 of the General Business Law, defendant is obligated to repurchase the 41 Open as it had been in plaintiff's inventory for less than twelve months and had never been sold. Plaintiff asserts that aside from the boat being transported to New York by water, it had only been used for promotional purposes at the behest of defendant in a fishing tournament sponsored by defendant. Thus, plaintiff argues that defendant is obligated to repurchase the vessel and plaintiff is entitled to the payment by defendant of the dealer invoice price ($527,000.00) plus shipping costs ($9,714.52). Likewise, with regard to the other boats that were in plaintiff's inventory at the time of the non-renewal of the Dealer Agreement, plaintiff asserts that defendant is obligated under Article 38 to reimburse plaintiff for the shipping charges associated with those vessels, and seeks compensation in the amount of $18,809.51.
It is undisputed that although defendant is a New Jersey corporation with its principal place of business in Florida, that New York law governs this dispute.
Plaintiff asserts that pursuant to GBL § 813, defendant was obligated to pay plaintiff for parts and labor provided by plaintiff when it performed warranty work on defendant's behalf. Plaintiff claims it expended $4,489.50 in warranty work for which it was not compensated by defendant and has annexed invoices issued to defendant to support such claim. Thus, it argues that defendant has breached both the Dealer Agreement and GBL § 813 and seeks summary judgment in the amount of $4,489.50. In addition to said amount, plaintiff alleges that according to GBL § 815, it is entitled to money damages to compensate for its financial injury, plus interest and attorney's fees because of defendant's violation of GBL § 813. Plaintiff asserts that the total amount of the financial injury is $707,080.11, comprised of the dealer invoice on the 41 Open, the shipping expenses on the 41 Open, the shipping expenses on the repurchased vessels, unreimbursed warranty work, the floor plan interest on the 41 Open, maritime surveyors' inspection fees and storage charges on the 41 Open. Plaintiff thus seeks summary judgment in the amount of $707,080.11 plus costs and disbursements and interest at the rate of 9% pursuant to CPLR § 9001.
Plaintiff also claims that it is entitled to summary judgment on its claim for the payment of $20,000 in dealer incentives promised by defendant but never paid.
Alternatively, plaintiff asserts that it is entitled to damages for breach of the Dealer Agreement by defendant's failure to repurchase the 41 Open and failure to provide a vessel that was of merchantable quality, free from defects and fit for its intended use. Plaintiff asserts that it is undisputed, according the expert reports, that the 41 Open suffers from fundamental design defects that have prevented it from being sold, that it paid for a boat that it could not sell and thus has set forth a prima facie case of breach of contract. Additionally, plaintiff argues that under the New York Uniform Commercial Code § 2-314 (implied warranty of merchantability), the 41 Open was not fit for its intended purpose, to wit, its sale to the general public as a "top-quality new recreational fishing boat". Moreover, plaintiff argues that pursuant to U.C.C. § 2-315 (implied warranty of fitness for a particular use), the 41 Open also fails in that the boat was not saleable to the public as a new, defect-free, tournament quality vessel as expounded in its own brochure. Thus, pursuant to U.C.C. § 2-714, plaintiff asserts it is entitled to damages for breach of warranty in an amount calculated as the difference between the value of the goods delivered and the value they would have been as warranted, plus incidental and consequential damages. However, here, plaintiff argues that it should be awarded a full refund of the 41 Open because it is now two years old and unsaleable as a new vessel. Plaintiff also seeks incidental damages in the form of the finance charges incurred in connection with financing the 41 Open, in the amount of $112,220.88 as of March 3, 2008, plus continuing interest at the rate of 10.25%, plus storage expenses ($32,390.00), inspection expenses ($2,435.70) and transportation expenses ($9,714.52).
Based on the foregoing, plaintiff seeks summary judgment on the first through thirteenth causes of action and seeks to sever the fourteenth and fifteen causes of action for trial.
Defendant opposes the motion and cross-moves for summary judgment dismissing the Complaint. In support of the opposition and cross-motion, defendant submits an affidavit from Kenneth Stofflet, defendant's regional sales manager and from Jack Connor, defendant's quality assurance auditor, together with an affirmation of counsel and Memorandum of Law.
At the outset, defendant asserts that GBL Article 38 does not provide a remedy to plaintiff in this action because it was plaintiff, and not defendant, who voluntarily decided not to renew its dealership agreement with defendant and did not give the proper statutory notice that it wanted defendant to repurchase its inventory. Specifically, defendant argues that the repurchase obligation of GBL § 811 was not triggered in the case sub judice because the non-renewal was not by the manufacturer, defendant. Rather, the Dealer Agreement was not renewed because plaintiff, the dealer, elected not to renew the agreement. In support of this position, Stofflet states in his affidavit that in July of 2006, he and David Taylor of Luhrs met with Tom Crowley, principal and owner of plaintiff corporation. At that meeting, Stofflet alleges that Crowley advised him and Taylor that plaintiff had decided not to renew the Dealer Agreement and that plaintiff would no longer be a dealer for defendant's boats. Stofflet further states that after the meeting, he sent an email message to Crowley confirming the conversation regarding plaintiff's decision not to renew the Dealer Agreement. Stofflet asserts that the sole reason the Dealer Agreement was not renewed was plaintiff's decision not to renew the agreement and to terminate its commercial relationship with defendant. Stofflet affidavit at ¶ 13. He states that defendant neither communicated its intention to terminate the Dealer Agreement nor desired to terminate its commercial relationship with plaintiff. Thus, defendant asserts that the first, second, third and fourth causes of action must be dismissed since GBL § 811 is inapplicable to the case at bar.
Similarly, defendant argues that although the Dealer Agreement (at Article 3) provided for a waiver of the written notice of the termination of the Dealer Agreement (as provided in GBL § 812(7)), it did not waive the requirements of GBL § 812(4), which imposes an affirmative obligation on plaintiff, dealer, to provide a written notice of a demand that defendant manufacturer repurchase its inventory, within thirty days of the termination of the dealer agreement. Since plaintiff did not provide defendant with a written notice of any demand to repurchase inventory, defendant argues that it had no obligation to repurchase the inventory and plaintiff's claim in this regard must be dismissed.
Moreover, defendant argues that because GBL § 811 does not apply to this case, the parties' rights and obligations are governed by the terms and conditions of the Dealer Agreement and the Uniform Commercial Code is inapplicable. Specifically, defendant points to Article 7 of the Dealer Agreement, which it argues provides the exclusive remedies upon termination of the agreement and bars plaintiff from relief under the U.C.C. Alternatively, defendant argues that if the Court were to find the UCC applicable to this case, that plaintiff has failed to qualify for relief under §§ 2-607 and 2-715.
Additionally, defendant argues that it was under no statutory or contractual obligation to effect any disposition of the inventory after plaintiff's decision to terminate the Dealer Agreement. However, defendant claims it voluntarily arranged for the resale, rather than repurchase, of five of the six vessels in plaintiff's inventory and as a result thereof, plaintiff realized a substantial monetary benefit. That is, defendant argues, that pursuant to Article 7 of the Dealer Agreement, if defendant had repurchased the vessels, plaintiff would have been entitled to the invoice price, less any freight charges and a 10% discount. Here, defendant assisted in the resale, and plaintiff realized the full resale price and actually realized a total of $112,219 more than if defendant had repurchased the vessels under the Dealer Agreement. Likewise, as set forth above, since defendant argues that GBL § 811 is inapplicable, it asserts that the causes of action for reimbursement of shipping charges in conjunction with the resale of the vessels are without merit and seeks summary judgment dismissing those causes of action (ninth and portion of second pertaining to shipping costs).
With regard to the eleventh cause of action for $20,000 in dealer incentives, defendant also asserts this claim is without merit as borne out by the documents submitted. In sum, defendant argues that plaintiff received all of the agreed incentive discount to which it was entitled and plaintiff's termination of the Dealer Agreement nullified the remainder of the incentive discount.
Defendant also seeks dismissal of the fifth cause of action regarding the defects in the 41 Open of which plaintiff claims it was "unaware". Here, defendant argues that plaintiff has admitted in its own submissions that it was aware of the defects upon taking possession of the boat and thus this cause of action must be dismissed.
Turning to the cause of action for non-reimbursement of warranty repairs, defendant sets forth a detailed analysis of each of the invoices submitted by plaintiff in support of the tenth cause of action. In sum, defendant claims that since none of the unpaid invoices reflects unreimbursed warranty work as covered by the Luhrs Limited Warranty and approved as such, that this cause of action must be dismissed. Since plaintiff cannot demonstrate a violation of the warranty provisions, defendant asserts that it is not entitled to damages, costs and attorney's fees under GBL § 815.
Finally, with regard to the fourteenth and fifteenth causes of action for loss of business and damage to business reputation, respectively, defendant reiterates that Article 7A of the Dealer Agreement limits plaintiff's rights, and plaintiff expressly waived and relinquished any right these claims. Thus, defendant requests that the Court grant summary judgment dismissing these causes of action.
Plaintiff opposes the cross-motion and submits an affidavit from Crowley together with a memorandum of law. Crowley states that it was actually defendant who "forced the end of the agreement by refusing to negotiate on a key term of the renewal agreement: the number of boats Bimini would be obligated to carry in its inventory under the proposed renewal agreement." Crowley Affidavit at ¶ 2. Crowley states that defendant insisted that plaintiff increase the number of boats it carried from six to eleven and that it was not able to finance the additional vessels, but defendant was not willing to negotiate this issue. Crowley Affidavit at ¶ 3. Thus, Crowley asserts that defendant made it impossible for plaintiff to renew and denies that he told or suggested to plaintiff that it wanted to end its commercial relationship. Crowley Affidavit at ¶ 6-7. Crowley admits that plaintiff did not send a demand to defendant regarding the repurchase of the remaining boats in the inventory, but says he saw no reason for same since defendant had volunteered to do so. Crowley Affidavit at ¶ 8.
Regarding the condition of the 41 Open, he admits that plaintiff was aware of "numerous manufacturing flaws" and saw that the "workmanship had been shoddy" but that the fundamental structural and design defects were not apparent from the pre-delivery inspections. Crowley Affidavit at ¶ 9. Additionally, he states plaintiff never blocked repairs of the 41 Open but rather that defendant refused to perform or approve warranty repairs on the vessel. Crowley Affidavit at ¶ 15. Crowley states that plaintiff has been paying floor plan interest on the 41 Open in the amount of $4,000 to $6,000 per month, while it has been unable to sell the vessel. Crowley Affidavit at ¶ 17. Turning to the warranty repairs for the other vessels, Crowley submits additional invoices and approvals in support of its claims for the unreimbursed repairs and reiterates that it is entitled to payment for these repairs.
Plaintiff further argues that the waiver provision contained in Article 7A of the Dealer Agreement is unenforceable because it violates GBL § 816 and New York public policy as expressed in both the General Business Law and Uniform Commercial Code. Thus, it asserts that defendant's arguments that plaintiff's claims for loss of business and damage to reputation are barred, must fail. Moreover, plaintiff argues that Article 7A only pertains to damages that arise out of the termination or non-renewal of the dealer agreement and not the claims set forth in the fourteenth and fifteenth causes of action. Finally, plaintiff asserts that the legislative history of Article 38 supports it claim that defendant should be required to repurchase plaintiff's inventory since plaintiff was not in breach of the agreement and the agreement was not non-renewed for cause. Thus, plaintiff urges the Court to grant summary judgment on the first through thirteenth causes of action, and deny defendant's motion for summary judgment dismissing the Complaint.
To obtain summary judgment, the moving party must make a prima facie showing of entitlement to judgment as a matter of law, offering sufficient evidence to demonstrate the absence of any material issues of fact. Goldberger v. Brick Ballerstein, Inc. , 217 A.D.2d 682, 629 N.Y.S.2d 813 (2d Dept. 1995) (internal citations omitted). The burden then shifts to the party opposing the motion to come forward with proof in admissible form demonstrating there are genuine issues of material fact which preclude the granting of summary judgment. Zayas v. Half Hollow Hills Cent. School Dist. , 226 A.D.2d 713, 641 N.Y.S.2d 701 (2d Dept. 1996).
In the case at bar, the record before the Court on these cross-motions for summary judgment demonstrate the significant issues of fact requiring a trial. First, plaintiff's claims under General Business Law Article 38 hinge on whether plaintiff voluntarily terminated the parties' commercial relationship. That is, if plaintiff elected not to renew the Dealer Agreement, it cannot be disputed that plaintiff is not entitled to certain protections contained within Article 38. However, if the non-renewal was the result of defendant's conduct, then plaintiff may be afforded some of the relief it seeks. The Court cannot make that determination based solely on the papers before it at this juncture, before discovery has been completed. Thus, the cross-motions for summary judgment on the first, second, third, fourth, ninth, twelfth, and thirteenth causes of action, are denied. Likewise, the conflicting affidavits regarding the dealer incentives, the condition of the 41 Open and defendant's alleged refusal to either perform, authorize or reimburse for warranty repairs, raise issues of fact regarding the claims for breach of warranty under GBL § 813. Therefore, the cross-motions for summary judgment on the fifth, sixth and eleventh causes of action, are also denied.
The seventh and eight causes of action, however, seek relief under UCC § 2-314 (implied warranty of merchantability) and § 2-315 (implied warranty of fitness for a particular purpose). Here, the Court agrees with defendant that relief under these provisions is barred by the limitation of remedies provision contained within Article 7 of the Dealer Agreement. UCC § 2-719 provides that an agreement may limit the remedies available under Article 2 and plaintiff has failed to demonstrate that such provision, as applied here, is contrary to public policy. Rather, plaintiff still has all the remedies available under GBL Article 38, including the penalty provisions under GBL § 815(1), in the event defendant is ultimately found to have violated GBL § 813. Therefore, the motion for summary judgment on the seventh and eighth causes of action is denied and the cross-motion for summary judgment is granted and those causes of action are dismissed.
Plaintiff's argument that the waiver provision violates GBL § 816 is without merit as that section only prohibits a manufacturer or distributor from imposing a condition on entering a contract that waives any provision of Article 38 of the General Business Law and does not apply to waivers of other rights.
For the same reasons, the cross-motion to dismiss the fourteenth and fifteenth causes of action for loss of business and damage to business reputation, respectively, are dismissed, as they are barred by Article 7 of the Dealer Agreement.
Counsel are reminded that a compliance conference is scheduled for November 5, 2008 at 9:30 a.m. before the undersigned.
This constitutes the DECISION and ORDER of the Court.