Opinion
332 CA 19-00581
10-02-2020
John T. DILLON and D. Timothy Dillon, Plaintiffs-Appellants, v. PEAK ENVIRONMENTAL, LLC, Marcus E. O'rourke, Jr. and Timothy M. O'rourke, Defendants-respondents.
SAUNDERS KAHLER, LLP, UTICA (MERRITT S. LOCKE OF COUNSEL), FOR PLAINTIFFS-APPELLANTS. SMITH, SOVIK, KENDRICK & SUGNET, P.C., SYRACUSE (DAVID M. KATZ OF COUNSEL), FOR DEFENDANTS-RESPONDENTS.
SAUNDERS KAHLER, LLP, UTICA (MERRITT S. LOCKE OF COUNSEL), FOR PLAINTIFFS-APPELLANTS.
SMITH, SOVIK, KENDRICK & SUGNET, P.C., SYRACUSE (DAVID M. KATZ OF COUNSEL), FOR DEFENDANTS-RESPONDENTS.
PRESENT: PERADOTTO, J.P., TROUTMAN, WINSLOW, AND DEJOSEPH, JJ.
MEMORANDUM AND ORDER
It is hereby ORDERED that the order so appealed from is unanimously modified on the law by denying that part of the motion seeking summary judgment dismissing the first cause of action and reinstating that cause of action and as modified the order is affirmed without costs.
Memorandum: Plaintiffs and defendants Marcus E. O'Rourke, Jr. and Timothy M. O'Rourke, who had been equal-interest members of defendant Peak Environmental, LLC (Peak), entered into a liquidation agreement setting conditions and buyout terms to effectuate plaintiffs' withdrawal and disassociation from Peak. Plaintiffs commenced this action alleging in the first cause of action that defendants fraudulently induced them to enter into the liquidation agreement—which included buyout terms allowing for the adjustment of the purchase price for work then in progress—by misrepresenting, among other things, the financial status of certain ongoing projects. Plaintiffs alleged in the fourth cause of action that Peak breached its contractual obligation under the liquidation agreement to indemnify them for payments they were required to make as guarantors of a line of credit obligation on which Peak purportedly defaulted. Plaintiffs appeal from an order that, inter alia, granted those parts of defendants' motion for summary judgment dismissing the first and fourth causes of action.
We reject plaintiffs' contention that Supreme Court erred in granting that part of the motion for summary judgment dismissing the fourth cause of action, seeking contractual indemnification against Peak. Peak established as a matter of law that the indemnification provisions of the liquidation agreement did not apply to plaintiffs' preexisting obligation as guarantors of the line of credit, and plaintiffs failed to raise a triable issue of fact in opposition (see Wisniewski v. Kings Plaza Shopping Ctr. of Flatbush Ave. , 279 A.D.2d 570, 571, 719 N.Y.S.2d 294 [2d Dept. 2001] ; see generally Zuckerman v. City of New York , 49 N.Y.2d 557, 562, 427 N.Y.S.2d 595, 404 N.E.2d 718 [1980] ).
Plaintiffs further contend that the court erred in granting that part of the motion for summary judgment dismissing the first cause of action. Initially, we reject plaintiffs' assertion that alleged misrepresentations made by defendants in a separate letter may serve as a basis for establishing fraudulent inducement in execution of the liquidation agreement. "While a general merger clause is ineffective to exclude parol evidence of fraud in the inducement, a specific disclaimer defeats any allegation that the contract was executed in reliance upon contrary ... representations" ( Barnaba Realty Group, LLC v. Solomon , 121 A.D.3d 730, 731, 994 N.Y.S.2d 356 [2d Dept. 2014] ; see Danann Realty Corp. v. Harris , 5 N.Y.2d 317, 320-321, 184 N.Y.S.2d 599, 157 N.E.2d 597 [1959] ). Here, the liquidation agreement specifically provided that the parties made no agreements, warranties, or representations other than those expressly set forth in the liquidation agreement (see Barnaba Realty Group, LLC , 121 A.D.3d at 731, 994 N.Y.S.2d 356 ; Sperry v. Papastamos , 195 A.D.2d 1031, 1033, 601 N.Y.S.2d 720 [4th Dept. 1993] ).
We agree with plaintiffs, however, that defendants failed to establish as a matter of law that the release in the liquidation agreement barred plaintiffs' claims that defendants made misrepresentations in violation of certain warranties therein. "In construing a general release it is appropriate to look to the controversy being settled and the purpose for which the release was executed[,] ... [and] a release may not be read to cover matters which the parties did not desire or intend to dispose of" ( Bugel v. WPS Niagara Props., Inc. , 19 A.D.3d 1081, 1082, 797 N.Y.S.2d 232 [4th Dept. 2005] [internal quotation marks omitted]; see Cahill v. Regan , 5 N.Y.2d 292, 299, 184 N.Y.S.2d 348, 157 N.E.2d 505 [1959] ). Here, although the liquidation agreement contained a general release in which plaintiffs broadly discharged defendants from, inter alia, any claims, liabilities, or obligations, including those known or unknown, and those concealed or hidden, the release provided an exception for "any obligation of [Peak] or the [m]embers established by this [liquidation a]greement." In that regard, the liquidation agreement established an obligation for defendants to make certain true and correct representations and warranties. As relevant here, defendants represented that Peak had no material obligations or liabilities beyond those disclosed in financial statements for the year preceding the liquidation agreement and also represented that there existed no circumstances resulting from transactions effected or events occurring prior to the liquidation agreement that could reasonably be expected to result in any such material obligation or liability beyond those disclosed in the subject financial statements. Plaintiffs' fraudulent inducement cause of action involves allegations that defendants violated those obligations by, among other things, misrepresenting in the subject financial statements the estimated completion levels and projected losses for certain ongoing projects. We therefore conclude that defendants failed to meet their initial burden of establishing, as a matter of law, that the release barred plaintiffs' claims that they were fraudulently induced to enter the liquidation agreement by misrepresentations that defendants made in violation of their obligations thereunder (see Silver v. Newman , 121 A.D.3d 667, 668, 993 N.Y.S.2d 556 [2d Dept. 2014] ).
Defendants nonetheless contend, as properly raised alternative grounds for affirmance (see Parochial Bus Sys. v. Board of Educ. of City of N.Y. , 60 N.Y.2d 539, 545-546, 470 N.Y.S.2d 564, 458 N.E.2d 1241 [1983] ), that summary judgment dismissing the first cause of action is warranted because the alleged misrepresentations are premised on nonactionable estimates and the record establishes as a matter of law that plaintiffs could not justifiably rely on the alleged misrepresentations. We reject that contention. A claim of fraudulent inducement is viable where, as here, the plaintiffs "allege that [the defendants] knew at the time of the estimate that the [financial cost of a] project would substantially exceed the amount of the estimate, that [the defendants] intentionally misstated the estimate in order to induce [the plaintiffs] to enter into the contract, that [the plaintiffs] relied on the misrepresentation, and that [the plaintiffs] were damaged as a result" ( Wright v. Selle , 27 A.D.3d 1065, 1067-1068, 811 N.Y.S.2d 525 [4th Dept. 2006] ). With respect to justifiable reliance, "[t]he determination of whether a party's reliance is reasonable is always nettlesome because it is so fact-intensive" ( Lunal Realty, LLC v. DiSanto Realty, LLC , 88 A.D.3d 661, 665, 930 N.Y.S.2d 619 [2d Dept. 2011] [internal quotation marks omitted]; see DDJ Mgt., LLC v. Rhone Group L.L.C. , 15 N.Y.3d 147, 155, 905 N.Y.S.2d 118, 931 N.E.2d 87 [2010] ). Here, defendants' own submissions establish that plaintiffs "made a significant effort to protect themselves against the possibility of false financial statements: they obtained representations and warranties to the effect that nothing in the financials was materially misleading" ( DDJ Mgt., LLC , 15 N.Y.3d at 156, 905 N.Y.S.2d 118, 931 N.E.2d 87 ; cf. Pappas v. Tzolis , 20 N.Y.3d 228, 233, 958 N.Y.S.2d 656, 982 N.E.2d 576 [2012], rearg denied 20 N.Y.3d 1075, 963 N.Y.S.2d 620, 986 N.E.2d 438 [2013] ), i.e., that Peak had no material liabilities beyond those disclosed in the financial statements and no circumstances existed that could reasonably be expected to result in such a material obligation. Thus, "[i]f plaintiffs can prove the allegations in the complaint, whether they were justified in relying on the warranties they received is a question to be resolved by the trier of fact" ( DDJ Mgt., LLC , 15 N.Y.3d at 156, 905 N.Y.S.2d 118, 931 N.E.2d 87 ; see Lunal Realty, LLC , 88 A.D.3d at 665, 930 N.Y.S.2d 619 ). We therefore modify the order by denying that part of defendants' motion seeking summary judgment dismissing the first cause of action and reinstating that cause of action.