Opinion
16349-15
07-08-2020
CASTLE RESTORATION, LLC, Plaintiff, v. CASTLE RESTORATION & CONSTRUCTION, INC., Robert P. Castaldi, Diane Castaldi, Windy Osprey Construction Corp., and Euro Castle Construction Corp., Defendants.
ABRAMS, FENSTERMAN, FENSTERMAN, EISMAN, FORTUNATO, FERRARA, WOLF & CARONE, LLP, Attorneys for Plaintiff, 3 Dakota Drive, Suite 300, Lake Success, New York 11042 FORCHELLI DEEGAN & TERRANA, LLP, Attorneys for Defendants Castle Restoration & Construction, Inc., Robert P. Castaldi, Diane Castaldi, Windy Osprey Construction Corp., 333 Earle Ovington Boulevard, Suite 1010, Uniondale, New York 11553
ABRAMS, FENSTERMAN, FENSTERMAN, EISMAN, FORTUNATO, FERRARA, WOLF & CARONE, LLP, Attorneys for Plaintiff, 3 Dakota Drive, Suite 300, Lake Success, New York 11042
FORCHELLI DEEGAN & TERRANA, LLP, Attorneys for Defendants Castle Restoration & Construction, Inc., Robert P. Castaldi, Diane Castaldi, Windy Osprey Construction Corp., 333 Earle Ovington Boulevard, Suite 1010, Uniondale, New York 11553
Elizabeth H. Emerson, J.
Upon the following papers read on this motion for summary judgment ; Notice of Motion and supporting papers 175-194 ; Notice of Cross Motion and supporting papers; Answering Affidavits and supporting papers 198-231 ; Replying Affidavits and supporting papers 232-239 ; it is,
ORDERED that the motion by the defendants Castle Restoration & Construction, Inc.; Robert P. Castaldi; Diane Castaldi; and Windy Osprey Construction Corp. for summary judgment dismissing the complaint insofar as it is asserted against them is granted as to the second, fourth, fifth, sixth, seventh, eighth, ninth, and tenth causes of action; and it is further
ORDERED that the motion is otherwise denied.
The defendant Robert Castaldi was the president of the defendant Castle Restoration & Construction, Inc. ("Castle Inc.") and his wife, the defendant Diane Castaldi, was its sole shareholder. Castle Inc.'s business was the exterior restoration and waterproofing of commercial buildings in New York City and in the tri-state area. Anthony Colao was also in the restoration and waterproofing business. In 2012, the Castaldis agreed to sell their business to Colao, the sole member of the plaintiff, Castle Restoration LLC ("Castle LLC" or the "LLC"). On March 15, 2012, Castle Inc. entered into an asset-sale agreement with Castle LLC, which agreed to purchase the majority of Castle Inc.'s assets, including its customer list and equipment, for $1.2 million. Castle LLC paid Castle Inc. $100,000 at the closing and gave Castle Inc. a promissory note in the amount of $1.1 million. The note was payable in consecutive monthly installments commencing on April 15, 2012. Castle LLC also entered into a consulting agreement with Robert Castaldi, who agreed, inter alia, to make reasonable efforts to solicit business opportunities for the LLC and to assist it in the preparation of formal bids, quotations, and proposals.
The LLC defaulted on the promissory note by failing to make the first payment on April 15, 2012. Castle Inc. commenced an action to recover on the note by moving for summary judgment in lieu of complaint in the Supreme Court, Nassau County. The motion was denied by an order of that court (Bucaria, J.) dated November 14, 2013, which was reversed by a decision and order of the Appellate Division, Second Department, dated November 19, 2014 ( 122 AD3d 789 ). On May 27, 2015, Castaldi commenced an action in this court against Castle LLC and Colao, among others, for breach of the consulting agreement (Index No. 605585-15). That action, which has been assigned to the undersigned Justice, is ready for trial. Castle LLC commenced this action on June 10, 2015. The complaint contains ten causes of action for breach of contract, fraud in the inducement, quantum meriut, unjust enrichment, and tortious interference with contract. Discovery is now complete, and the defendants Castle Inc., Robert Castaldi, Diane Castaldi, and Windy Osprey Construction Corp. ("Windy Osprey") move for summary judgment dismissing the complaint insofar as it is asserted against them.
Breach of the Asset-Sale Agreement
The first cause of action for breach of contract alleges that Castle Inc. breached the asset-sale agreement (i) by failing to complete all of its work-in-progress as of the closing date as required by § 2.04, (ii) by failing to honor its warranty obligations to existing customers and satisfy its other debts and liabilities as required by § 2.03, (iii) by failing to pay its vendors, and (iv) by failing to indemnify Castle LLC for losses incurred as a result of its breaches as required by § 10.01. The moving defendants contend that this cause of action should be dismissed because Castle LLC's default under the promissory note was a material breach of the asset-sale agreement, which discharged Castle Inc.'s obligation to perform thereunder and precludes Castle LLC from enforcing the asset-sale agreement. The moving defendants contend that Castle LLC's breach of the asset-sale agreement is undisputed because the Second Department granted Castle Inc.'s motion for summary judgment in lieu of complaint on the promissory note, expressly rejecting Castle LLC's defenses thereto.
The moving defendants appear to be making a collateral-estoppel argument. The equitable doctrine of collateral estoppel is based upon the general notion that it is not fair to permit a party to relitigate an issue that has already been decided against it (Matter of Juan C. v. Cortines , 89 NY2d 659, 667 ). Its essential ingredients are: first, the identical issue must have been decided in the prior action and must be decisive of the present action and, second, the party to be precluded from relitigating the issue must have had a full and fair opportunity to contest the prior determination (Id .). The party seeking the benefit of collateral estoppel has the burden of demonstrating the identity of the issues in the present litigation and in the prior determination (Id .). The court finds that Castle Inc. has failed to meet that burden.
In opposition to Castle Inc.'s motion for summary judgment in lieu of complaint, Castle LLC argued that it was not delinquent on the promissory note because the parties entered into a subsequent oral agreement in which Castle LLC agreed to provide Castle Inc. with labor and materials, the value of which would be used to offset Castle LLC's obligations under the promissory note. Castle LLC argued that Castle Inc. breached the alleged oral agreement by refusing to offset the value of the labor and materials against the promissory note. The Second Department rejected that argument on the ground that the breach of a related contract cannot defeat a motion for summary judgment on an instrument for the payment of money only unless it can be shown that the contract and the instrument are "intertwined." The court found that Castle LLC had failed to demonstrate that the alleged oral agreement was "inextricably intertwined" with the promissory note.
In opposition to the present motion, Castle LLC contends that Colao reached an oral agreement with Robert Castaldi whereby Castle LLC would complete Castle Inc.'s work-in-progress, which Castle Inc. was obligated to complete under § 2.04 of the asset-purchase agreement. In exchange, Castaldi would apply the LLC's costs and expenses, including reasonable profit and overhead, against the balance due on the promissory note. Castle LLC is, in effect, arguing that the alleged oral agreement between Castaldi and Colao modified the asset-sale agreement, thereby relieving the LLC, at least partially, of its obligation to pay the purchase price.
Contrary to the moving defendants' contentions, the Appellate Division did not determine that Castle LLC had breached the asset-sale agreement. The Appellate Division merely determined that Castle LLC could not use Castle Inc.'s purported breach of the alleged oral agreement as a defense to Castle Inc.'s motion for summary judgment on the promissory note because the note and the alleged oral agreement were not "inextricably intertwined." Here, the issue is whether the alleged oral agreement modified the asset-sale agreement and relieved Castle LLC of its obligation to perform thereunder. The Appellate Division never decided that issue. Accordingly, the court finds that collateral estoppel does not apply.
In view of the foregoing, the court declines to dismiss the first cause of action for breach of the asset-purchase agreement. The court notes, however, that the first cause of action alleges that Castle Inc. breached the asset-sale agreement, inter alia, by failing to complete all of the work-in-progress that existed as of the closing date as required by § 2.04. The alleged oral
agreement would have relieved Castle Inc. of its obligation to perform under § 2.04. Thus, Castle LLC cannot prevail on its claim that Castle Inc. breached § 2.04 of the asset-purchase agreement if the alleged oral agreement is valid and enforceable (see, infra ).
Fraud in the Inducement
The second cause of action for fraud in the inducement alleges that (i) Castle Inc. made false representations on the customer list attached to the asset-sale agreement by including thereon entities that were not customers of Castle Inc. within two years of the closing and (ii) that the defendants falsely represented that Castle Inc. intended to complete the work-in-progress. The moving defendants contend that this cause of action should be dismissed because it merely alleges a breach of the asset-sale agreement and an insincere promise of future performance. The moving defendants also contend that Castle LLC could have discovered the alleged misrepresentations on the customer list by exercising due diligence.
A simple breach of contract is not to be considered a tort unless a legal duty independent of the contract has been violated (see , Clark-Fitzpatrick, Inc. v. Long Is. R.R. Co. , 70 NY2d 382, 389 ). A cause of action for fraud may not be maintained when the only fraud alleged relates to a breach of contract ( Lee v. Matarrese , 17 AD3d 539, 540 ). A cause of action will be found to sound in tort rather than in contract only when the cause of action is entirely independent of the contractual relations between the parties (Id .). A fraud claim will be dismissed as redundant when the only fraud alleged is that the defendant was not sincere when it promised to perform under the contract ( First Bank of the Americas v. Motor Car Funding , 257 AD2d 287, 291-292 ). Moreover, a claim of fraud will not lie if the misrepresentation allegedly relied upon was not a matter within the peculiar knowledge of the party against whom the fraud is asserted and could have been discovered by the party allegedly defrauded through the exercise of due diligence ( Cohen v. Cerier , 243 AD2d 670, 672 ).
Castle LLC does not allege the breach of a duty independent of the asset-sale agreement. The allegation that the defendants falsely represented that Castle Inc. intended to complete the work-in-progress is merely an allegation that they were was not sincere in promising to complete such work. Moreover, the alleged misrepresentations on the customer list could have been discovered by Castle LLC through the exercise of due diligence. Castle LLC acknowledged in the asset-sale agreement that it had been afforded a full opportunity prior to the closing to complete its due diligence review of Castle Inc.'s books, records, financial statements, assets, equipment and fixtures and that it was fully satisfied therewith (§ 7.01 [b] ). The "customer database" was listed as an "asset" in § 2.01 of the asset-sale agreement, and the customer list was annexed thereto as part of Exhibit A. Thus, the identity of Castle Inc.'s customers was not a matter within the peculiar knowledge of Castle Inc., and Castle LLC's failure to verify the customer list was unreasonable as a matter of law (see , Orlando v. Kukielka , 40 AD3d 829, 831 ). Accordingly, the second cause of action is dismissed.
Breach of Contract
The moving defendants contend that the third cause of action for breach of contract should be dismissed because it is duplicative of the first cause of action for breach of the asset-sale agreement. In opposition, Castle LLC contends that the third cause of action does not allege a breach of the asset-sale agreement, but that Castle Inc. breached the purported oral agreement by failing to compensate Castle LLC for completing Castle Inc.'s work-in-progress. In reply, the moving defendants contend, inter alia, that the purported oral agreement is barred by the no-oral-modification provision of the asset-sale agreement, which provides, "This Agreement may be amended or modified only by written agreement executed by all of the Parties hereto."
Castle LLC is correct that the third cause of action alleges a breach of the purported oral agreement to complete Castle Inc.'s work-in-progress, and the defendants are correct that the asset-purchase agreement contains a no-oral-modification clause.
Parties to a written agreement who include a proscription against oral modification are protected by the statute of frauds ( General Obligations Law § 15-301[1] ; ( Rose v. Spa Realty Assoc ., 42 NY2d 338, 343 ). Any contract containing such a clause cannot be changed by an executory agreement unless such executory agreement is in writing and signed by the party against whom enforcement is sought (Id. ). Put otherwise, if the only proof of an alleged agreement to deviate from a written contract is the oral exchanges between the parties, the writing controls. Thus, the authenticity of any amendment is ensured (Id. ). There are two exceptions to the statute of frauds: partial performance and promissory estoppel. ( Richardson & Lucas , Inc. v. New York Athletic Club of City of NY , 304 AD2d 462, 463 ). Neither exception is available, however, unless the partial performance or the acts taken in detrimental reliance are unequivocally referable to the new, oral agreement (Id .). In order to be unequivocally referable, the conduct must be inconsistent with any other explanation (Id .).
Summary judgment is a drastic remedy that deprives a litigant of his or her day in court. It should only be employed when there is no doubt as to the absence of triable issues of material fact ( Germain v. McMillan , 2009 NY Slip Op 32122[U] at *2 [and cases cited therein] ). The movant has the burden of establishing its prima facie entitlement to judgment as a matter of law by affirmatively demonstrating the merits of its claim or defense (Id .).
The court finds that the moving defendants have failed to meet their burden. Even if the alleged oral modification is barred by the no-oral-modification provision of the asset-sale agreement, the moving defendants have failed to address either of the two exceptions to the statute of frauds (partial performance and promissory estoppel) and whether the additional work performed by Castle LLC to complete Castle Inc.'s work-in-progress is inequivocally referable to the alleged oral agreement. Since the moving defendants have failed to establish as a matter of law that the alleged oral agreement upon which Castle LLC relies is barred by the statute of frauds, it is not necessary to consider the sufficiency of Castle LLC's opposing papers (Id .).
The moving defendants also contend in their reply brief that the third cause of action is barred by res judicata or collateral estoppel because the Appellate Division expressly rejected Castle LLC's claim for an offset or reduction in the amount due on the promissory note based on the alleged oral agreement. As previously discussed, the Appellate Division never addressed whether the alleged oral agreement modified the asset-sale agreement, which is the issue here. Accordingly, the court declines to dismiss the third cause of action.
Quantum Meruit
The moving defendants contend that the fourth cause of action should be dismissed because the written asset-sale agreement governs the parties' dispute and, therefore, bars a cause of action sounding in quantum meriut. In opposition, Castle LLC contends that quantum meruit is pled as an alternative to the third cause of action for breach of the alleged oral agreement to complete Castle Inc.'s work-in-progress. Castle LLC contends that, if the court concludes no oral agreement was entered into, it should still be able to recover in quantum meruit for finishing Castle Inc.'s work-in-progress.
Contrary to Castle LLC's contentions, if it is finally determined that no oral agreement was entered into, or that the alleged oral agreement is unenforceable, then the written asset-sale agreement governs the parties' dispute (see , Rose v. Spa Realty Assoc ., supra ). Section 2.04 of that agreement required Castle Inc. to complete all of its work-in-progress. If Castle Inc. did not complete the work-in-progress, Castle LLC's remedy is a claim for breach of the asset-sale agreement. Castle LLC has already asserted such a claim. The first cause of action alleges that Castle Inc. breached the asset-sale agreement, inter alia, by failing to complete all of the work-in-progress that existed as of the closing date as required by § 2.04. When, as here, there is no dispute as to the existence of a contract and the contract covers the dispute between the parties, the plaintiff may not proceed upon a theory of quantum meruit as well as seek to recover damages for breach of contract ( Alamo Contract Builders v. CTF Hotel Co. , 242 AD2d 643 ). Accordingly, the fourth cause of action is dismissed.
Unjust Enrichment
The fifth cause of action, like the fourth cause of action, seeks to recover in quasi-contract for Castle LLC's completion of Castle Inc's work-in-progress. The fifth cause of action alleges that Castle Inc. was unjustly enriched by retaining payments from third parties for work performed by Castle LLC. The moving defendants contend that the written asset-sale agreement governs the parties' dispute and, therefore, bars a claim for unjust enrichment. The moving defendants also contend that Castle LLC's remedy is not against them, but against the third parties who paid Castle Inc. Castle LLC makes the same arguments in opposition to dismissal of this cause of action that it made in opposition to dismissal of the previous cause of action.
Unjust enrichment, like quantum meruit, applies in the absence of an actual agreement between the parties that governs the subject matter ( Pappas v. Tzolis , 20 NY3d 228, 234 ; Cox v. NAP Constr. Co., Inc. , 10 NY3d 592, 607 ). As previously discussed, if it is finally determined that no oral agreement was entered into, or that the alleged oral agreement is unenforceable, then the written asset-sale agreement governs the parties' dispute. Accordingly, the fifth cause of action is dismissed.
Breach of the Restrictive Covenant
Section 11.04 of the asset-purchase agreement prohibits Castle, Inc.; Robert Castaldi; and Diane Castaldi from owning, managing, or controlling, or participating in the ownership, management, or control, of a competing construction or restoration business within a 40-mile radius of the Queens Midtown Tunnel during the term of Robert Castaldi's consulting agreement and for a period of two years thereafter. The seventh cause of action alleges that Robert and Diane Castaldi breached § 11.04 by directing the renovation of the Suffolk Theater in Riverhead, New York, through Windy Osprey and the defendant Euro Castle Construction Corp. ("Euro Castle"), competing construction and restoration businesses located in Long Island City, New York.
As moving defendants correctly contend, § 11.04 is expressly "subject to [Castle LLC's] timely fulfillment of its obligations under the Note and Security Agreement." The Appellate Division determined that Castle Inc. had "made a prima facie showing of its entitlement to judgment as a matter of law by submitting the promissory note and proof of [Castle LLC's] failure to make payments on the note according to its terms." The Appellate Division also determined that the alleged oral agreement was not a defense to an action on the promissory note and awarded summary judgment to Castle Inc. on the note.
As previously discussed, collateral estoppel precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party, or those in privity therewith ( Ryan v. New York Tel. Co. , 62 NY2d 494, 500 ). The Appellate Division's determination that Castle LLC failed to make payments on the promissory note precludes relitigation of that issue in this action and establishes, as a matter of law, that Castle LLC failed to fulfill the condition to the Castaldis' performance under § 11.04. Thus, the Castaldis did not breach § 11.04 since their obligation to comply therewith never arose. Accordingly, the seventh cause of action is dismissed.
Breach of the Consulting Agreement
The tenth cause of action alleges that Robert Castaldi breached his obligations under the consulting agreement with Castle LLC. That agreement required Castaldi, inter alia, to make reasonable efforts to solicit business opportunities for the LLC and to assist it in the preparation of formal bids, quotations, and proposals.
As previously noted, Castaldi commenced an action in this court against Castle LLC and Colao, among others, for breach of the consulting agreement (Index No. 605585-15). That action was assigned to the undersigned Justice, and both sides moved for summary judgment. By an order dated January 22, 2020, the court found that Castle LLC had breached the consulting agreement and awarded Castaldi damages in the amount of $50,260.87. Thus, the issue of whether Castaldi breached the consulting agreement has already been determined against Castle LLC. That determination collaterally estops Castle LLC from relitigating the issue of Castaldi's breach of the consulting agreement in this action (see , Ryan v. New York Tel. Co. , supra ). Accordingly, the tenth cause of action is dismissed.
Tortious Interference with Contract
The sixth, eighth, and ninth causes of action are for tortious interference with contract.
The sixth cause of action alleges that Castle Inc. interfered with Castle LLC's use and enjoyment of a premises that it leased from Wolf Properties Associates, L.P. ("Wolf Properties"), causing Wolf Properties to breach the lease. Castle LLC alleges that it was unable to use the premises because Castle Inc., which had vacated the premises, left behind furniture, equipment, and toxic chemicals, among other things, as well as one of its employees. The moving defendants seek dismissal of this cause of action because Wolf Properties and Castle Inc. are both owned by the Castaldis and a corporation cannot be held liable for interfering with the contract of an affiliate. Castle LLC contends that Wolf Properties and Castle Inc. are not affiliated because one is owned by Robert Castaldi and the other by Diane Castaldi.
Tortious interference with contract requires the existence of a valid contract between the plaintiff and a third-party, the defendant's knowledge of that contract, the defendant's intentional procurement of the third party's breach of that contract without justification, actual breach of the contract, and damages resulting therefrom ( Lama Holding v. Smith Barney , 88 NY2d 413, 424 ). The interference must be intentional, not merely negligent or incidental to some other, lawful purpose ( Alvord & Swift v. Steward M. Muller Const. Co. , 46 NY2d 276, 281 ). Castle LLC does not allege, nor does the record reflect, that Castle Inc.'s actions were an intentional effort to induce Wolf Properties to breach the lease without justification (see , Republic of Turkey v. Christie's Inc. , 425 F Supp 3d 204, 219 ). Thus, even if Wolf Properties and Castle Inc. are not affiliated, dismissal of the sixth cause of action is warranted.
The eighth cause of action alleges that Windy Osprey induced Robert and Diane Castaldi to breach § 11.04 of the asset-purchase agreement (the restrictive covenant) by providing them with a platform from which to operate a business that competed with Castle LLC. Tortious interference with contract requires, inter alia, an actual breach of § 11.04 (Lama Holding v. Smith Barney , supra ). The court has already determined that the Castaldis did not breach § 11.04 because their obligation to comply therewith never arose. Accordingly, the eighth cause of action is dismissed.
The eighth cause of action also alleges that Euro Castle induced Robert and Diane Castaldi to breach § 11.04. Euro Castle, however, has not appeared and moved for summary judgment with the other defendants.
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The ninth cause of action alleges that Robert and Diane Castaldi allowed Castle Inc.'s insurance to lapse, thereby preventing Castle Inc. from completing its work-in-progress and causing it to breach § 2.04 of the asset-sale agreement. It is well-established that only a stranger to a contract, such as a third-party, can be liable for tortious interference with a contract ( Ashby v. ALM Media, LLC , 110 AD3d 459 ). Robert Castaldi was the president of Castle Inc., and Diane Castaldi was its sole shareholder. As such, they were not strangers to the asset-sale agreement (Id .; see also , Joan Hansen & Co. v. Everlast World's Boxing Headquarters Corp. , 296 AD2d 103, 109 ). Moreover, the record does not reflect that the Castaldis' actions were performed with malice and were calculated to impair Castle LLC's business for their personal profit ( Id. at 109-110 ). Castle LLC's conclusory assertions that the Castaldis were personally motivated by a desire to save themselves money are insufficient (Id .). Accordingly, the ninth cause of action is dismissed.
Conclusion
The defendants' motion for summary judgment is granted to the extent of dismissing the second, fourth, fifth, sixth, seventh, eighth, ninth, and tenth causes of action, and the motion is otherwise denied.