Opinion
601479-2007.
Decided January 8, 2008.
Robert J. Hantman, Esq., Bruce J. Zabarauskas, Esq., HANTMAN ASSOCIATES, THELEN REID BROWN, Attorneys at Law RAYSMAN STEINER LLP, New York, New York 10022, For Plaintiffs:For Defendants.
This lawsuit principally concerns plaintiffs' allegation that defendants breached an agreement to bring about a November 11, 2006 Heavyweight Championship fight between then defending International Boxing Federation Heavyweight Champion, defendant Wladimir Klitschko, and boxer Shannon Briggs at Madison Square Garden. Four of the five defendants jointly filed this motion to dismiss, contending that the alleged agreement is unenforceable under the rules of the New York State Athletic Commission. For the reasons that follow, I deny defendants' motion to dismiss the fraudulent misrepresentation cause of action but otherwise grant the motion to dismiss.
I will refer to these four defendants simply as "defendants" in this decision, although defendant Sport Five, which is a German sports agency, according to the Complaint, (Compl. ¶ 7), has not joined in this motion.
According to the Complaint, a meeting was held on June 16, 2006 between plaintiff Cedric Kushner, defendant Shelly Finkel, Michael Borao, Shannon Briggs, and Briggs's manager, Scott Hirsch, during which an oral agreement was reached that Briggs would fight Wladimir Klitschko on November 11, 2006 in a Heavyweight Championship fight at Madison Square Garden (the "Klitschko-Briggs fight"). Kushner, a boxing promoter, acted on behalf of Briggs. (Compl. ¶ 3.) The Complaint alleges that Finkel, who "serves as Klitschko's advisor," attended this meeting "on behalf of all the defendants" and "was acting on behalf of all the defendants with their authorization, knowledge and advice" at the June 16 meeting. (Compl. ¶ 21-22.) At the end of the day, the parties reached an oral agreement that Briggs would fight Wladimir Klitschko on November 11, 2006 in a Heavyweight Championship fight at Madison Square Garden.
All of the relevant events discussed in this memorandum decision took place in 2006, unless otherwise noted.
Borao was counsel for Heavyweight Boxing Promotions, Inc., which, according to the Complaint, gave plaintiff Gotham Boxing, Inc. the exclusive right to negotiate a championship fight against Klitschko on Briggs's behalf. (Compl. ¶ 3.)
The Complaint alleges that Finkel acted "on behalf of himself and as agent, representative, employee or alter-ego'" of defendant Shelly Finkel Management, Inc., Klitschko, and K2 Promotions, Inc. ("K2") in the course of all conduct alleged in the Complaint. (Compl. ¶ 8-9.)
The Complaint alleges that, on June 17, Finkel telephoned Kushner to request an email confirmation that plaintiffs and Briggs accepted the fight. Kushner emailed Finkel the same day "confirming" the following terms: Briggs would fight Klitschko on November 11, 2006 at Madison Square Garden, for a cash payment of $750,000 and $350,000 in tickets; that Gotham Boxing Inc. would receive co-promotional billing; and that, if Briggs won, he "agree[d] to an immediate re-match, and the compensation of said re-match shall be 60%/40% of all US revinues, in Briggs's favor [sic]." (Compl. Ex. A.) The Complaint asserts that Finkel "advised plaintiffs" that "a written agreement would be prepared by Klitschko's lawyer, John Hornewer." (Compl. ¶ 27.)
According to the Complaint, news of the anticipated Klitschko-Briggs fight leaked to the press. BoxingExclusive.com announced the November 11 fight between Klitschko and Briggs at Madison Square Garden in a June 17, 2006 headline. (Compl. ¶ 17.) None of the defendants sought a retraction. (Compl. ¶ 18-19.)
The Complaint alleges that, on June 28, Finkel telephoned Kushner and demanded that Briggs withdraw from his previously scheduled July 26 fight in New York, lest he forfeit his right to participate in the Klitschko-Briggs fight in November. (Compl. ¶ 28.)
A June 28 email from Kushner to Finkel, attached as Exhibit B to the Complaint, states that Kushner "confirm[s] that Shannon will withdrawal [sic] from [the] July 26th [bout] and not schedule another fight prior to Nov. 11th." Kushner also asked Finkel, in light of their "agreement' with me not telling people that Brigg's [sic] has the fight [with Klitschko on November 11], I am going to need a reason for his withdrawal [from the July 26 bout]." Kushner then proposed language, for Finkel's approval, that Kushner might use as an excuse to pull out of the July 26 bout, without breaking their "agreement" not to tell the public that Briggs "has the fight" with Klitschko on November 11. Kushner proposed the following language, inter alia:
When questioned about Brigg's [sic] withdrawal, Kushner said, "The opportunity of fighting for the world title is something that is too important to be jeopardized." Even though Kushner's talks with the IBF [International Boxing Federation] champion Kitschko's representative, Shelly Finkle [sic] are far from conclusive, the Brigg's [sic] team have decided withdrawing would be the prudent thing to do at this time.
(Compl. Ex. B.)
In his July 28 email, Kushner also asked Finkel for reimbursement for plaintiffs' $20,000 in expenses for printing, press conferences, and lost ticket sales related to the cancellation of the July 26 fight. (Compl. ¶ 30, Ex. B.) The Complaint alleges that, on June 29, Finkel responded by email that he was "speaking to his people about the $20,000" and reiterated that "the fight is firm." (Compl. ¶ 30.)
The Complaint further alleges that, during the week of July 4, Kushner received a phone call from Klitschko's advisor in Germany, Bernd Boente, advising him that there would be a press conference in Germany to announce the Klitschko-Briggs fight. (Compl. ¶ 31.) Between July 10 and 13, Finkel made an angry phone call to Kushner, "demanding that he advise the Briggs team not to tell anyone that they indeed had the fight." (Compl. ¶ 32.)
Around August 4, Finkel took the dais at a press conference after boxer Oleg Maskaev won a fight against boxer Rahman, to publicly challenge Maskaev to fight Klitschko. (Compl. ¶ 35.) Kushner left a phone message for Finkel, because he was concerned that Finkel's challenge to Maskaev would jeopardize the Klitschko-Briggs fight. Finkel called Kushner back, assuring him that the "our fight is definitely taking place." (Compl. ¶ 36-37.)
On August 7, Kushner advised Finkel that Briggs had turned down several other offers, including a WBO Title fight, because of the anticipated Klitschko-Briggs fight in November. (Compl. ¶ 39-40.) On the same day, Finkel promised Kushner that he would have the written contract later that week. (Compl. ¶ 41.)
According to the Complaint, on August 8, Kushner received a copy of a letter sent by Tom Loeffler, a representative of K2, to the International Boxing Federation, "requesting sanctioning of" the Klitschko-Briggs fight. (Compl. ¶ 42.)
The Complaint alleges that Kushner finally received a written contract on August 11, but it contained material terms that were contrary to the parties' previous agreement. (Compl. ¶ 47.) On August 17, Finkel demanded that Kushner obtain a release from Briggs in case Klitschko fought Maskaev instead of Briggs on November 11; otherwise, he threatened to cancel the Klitschko-Briggs fight. (Compl. ¶ 49.)Finkel also stated that "he had spoken to Klitschko who said if litigation was contemplated, . . . the deal would be off." (Compl. ¶ 50.)
According to the Complaint, ESPN.com reported on August 24, 2006 that the terms of the Klitschko-Briggs fight had been "agreed upon" weeks before, but Briggs had been placed in "limbo" after Finkel offered the same date to Maskaev. (Compl. ¶ 33, Ex. B.)
The Complaint alleges that defendants acted in bad faith by dragging their feet in producing a draft written contract and changing the material terms of the agreement when they finally produced one, and by repeatedly assuring plaintiffs that the fight was on demanding that plaintiffs cancel its previously scheduled fight, while defendants actively tried to secure a fight against Maskaev and others. (Compl. ¶ 52.) Defendants "had no intention of holding the Novemeber 11th, fight with Briggs [sic]." (Compl. ¶ 54.)
The Complaint alleges that, when it became apparent to Kushner that the Klitschko-Briggs fight would not happen after all, Kushner had to advise the HBO network that the Klitschko-Briggs fight would not happen. (Compl. ¶ 54.) Klitschko went on to fight and defeat Calvin Brock at Madison Square Garden on November 11. (Compl. ¶ 56.)
The Complaint further alleges that, as a result of defendants' conduct, plaintiffs lost money from cancelling the July 26 fight, lost the fee and publicity they would have earned from the Klitschko-Briggs fight, lost their contract with Heavyweight Boxing Promotions, Inc. and lost their relationship with Briggs, who went on to sign with Don King and become a World Champion.
In an affidavit submitted by plaintiffs, Kushner has averred that it is "common practice within boxing" for persons in plaintiffs' positions to rely on an oral agreement that a fight between particular boxers will occur on a particular date, while they wait for their lawyers to prepare a written contract and submit it for the Commission's approval. (Kushner Aff. ¶ 29-31.)Kushner has averred that defendants assumed responsibility for reducing the agreement to writing and for submitting the written contract to the NY State Athletic Commission. (Kushner Aff. ¶ 21.) Kushner has further averred that defendants' plan all along was to "tie up the Garden" by stringing plaintiffs' along, while defendants attempted to arrange for a match on the same day between Klitschko and someone else. (Kushner Aff. ¶ 23.)
In an affidavit submitted on behalf of plaintiffs by Roy Langbord, a consultant for various boxing promotion companies, Landbord averred that he tried several times on behalf of promoter Don King to discuss with Kushner a possible bout between Briggs and one of the heavyweight boxers represented by King. Langbord avers that Kushner declined the opportunity to meet with King several times, including on August 12, 2006, because Kushner was counting on the deal with Finkel for the Klitschko-Briggs fight. (Langbord Aff. ¶ 4-6.)
Plaintiffs Kushner and Gotham Boxing, Inc. ("Gotham"), the boxing promotion company, of which Kushner is president, filed this Complaint in six causes of action: breach of contract, breach of the implied covenant of good faith and fair dealing, fraudulent misrepresentation, aiding and abetting, prima facie tort, and promissory estoppel.
The Complaint misnumbers the fourth, fifth, and sixth counts as Count VII, VIII, and IX.
Defendants Finkel, Shelly Finkel Management, Inc., Klitschko, and K2 move to dismiss all counts of the Complaint either for failing to state a cause of action or because documentary evidence disposes of them, pursuant to CPLR § 3211(a)(1) and (7). Defendants also seek sanctions against plaintiffs pursuant to 22 NYCRR § 130-1.1 for bringing a frivolous lawsuit. In support of their motion, defendants have submitted an affidavit by John Hornewer, an attorney for Klitschko and K2. In the affidavit, Hornewer avers, among other things, that he represented Klitschko and K2 in negotiating a written contract for the Klitschko-Briggs fight between August 1 and 23, until Borao terminated the negotiations on behalf of the Briggs team by email on August 23. (Hornewer Aff. ¶ 3-8.)
Legal Standard on a Motion to Dismiss Under CPLR § 3211(a)(1) and (a)(7)
For purposes of this motion, I presume the allegations of the Complaint to be true and accord them "every favorable inference," except insofar as they "consist of bare legal conclusions" or are "inherently incredible or flatly contradicted by documentary evidence." Beattie v. Brown Wood, 243 AD2d 395, 395 (1st Dept. 1997). "Dismissal pursuant to CPLR 3211(a)(1) is warranted only if the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law." Ladenburg Thalmann Co. v. Tim's Amusements, Inc., 275 AD2d 243, 246 (1st Dept. 2000). In opposing a CPLR 3211(a)(7) motion dismiss for failure to state a claim, "affidavits may be used freely to preserve inartfully pleaded, but potentially meritorious, claims." Rovello v. Orofino Realty Co., 40 NY2d 633, 635 (1976). When a CPLR § 3211(a)(7) motion has not been converted to a motion for summary judgment, however, "affidavits may be received for a limited purpose only, serving normally to remedy defects in the complaint." Id. at 636. "[A]ffidavits submitted by the defendant will seldom if ever warrant the relief he seeks unless too the affidavits establish conclusively that plaintiff has no cause of action." Id.
A.Breach of Contract Claim
In the first cause of action, the Complaint alleges that the parties reached an oral agreement to bring about a fight between Briggs and Klitschko for the International Boxing Federation ("IBF") Championship at Madison Square Garden on November 11, 2006.
Defendants maintain that plaintiffs' claims are barred by the rules of the New York State Athletic Commission (the "Commission"). The alleged oral agreement was not approved by the Commission; thus, the argument goes, it cannot be enforced. It is undisputed that no agreement concerning the Klitschko-Briggs fight was approved by the Commission.
Boxing in New York State is regulated by the Commission, which is vested by statute with "the sole direction, management, control and jurisdiction over all such boxing and sparring matches or exhibitions to be conducted, held or given within the state of New York." 25 Unconsol. Law § 8906(1). The statute provides that "[a]ny contract between a boxer and the promoter or manager shall be in writing and filed with the commission at the time any agreement is made for a match to take place in the state." 25 Unconsol. Law § 8934(7) (emphasis added). The statute further authorizes "[t]he members of the commission [to] . . . make such rules for the administration of their office, not inconsistent herewith, as they may deem expedient." 25 Unconsol. Law § 8901.
In accordance with that statutory authorization, the Commission has issued administrative regulations (the "Rules"). The Rules state, for example, that "[n]o boxing or wrestling contest or exhibition shall be held within this State except in accordance with law and the rules of the commission." 19 NYCRR § 206.2. The Rules also provide: "All contests and exhibitions shall be approved in advance by the commission." 19 NYCRR § 209.1.
The Rules state in three different places that a contract to bring about a fight is not valid or binding unless it is approved by the Commission. E.g., 19 NYCRR § 206.14 ("No contract for any activity under the commission's jurisdiction shall be valid unless approved by and filed with the commission."); 19 NYCRR § 208.1 ("No contract relating to a matter within the commission's jurisdiction shall be valid or binding unless and until approved by the commission."); 19 NYCRR § 208.14 (All "contracts . . . pertaining to a contest or exhibition to be held in New York . . . shall be approved by and filed with the commission.").
The Rules provide that these contracts must be filed "within 48 hours after execution of such contract" and no later than ten business days before the fight is to take place, "unless otherwise directed or authorized by the commission." 19 NYCRR § 208.18; see also 19 NYCRR § 208.24. The Rules caution that "[n]o one may publicly announce or advertise that any contest or exhibition will take place unless such contest or exhibition has been formally approved by the commission. 19 NYCRR § 208.24.
The Rules also authorize the Commission to subject "[p]arties failing to carry out the conditions of contracts to which they are parties" to "disciplinary action by the commission, in the discretion of the commission, including license suspension or revocation," and provide that "[m]anagers may be disciplined by the commission for failure of their principals to carry out the conditions of contracts to which they are parties." 19 NYCRR § 208.3.
The standard for judicial review of a Rule of the Commission is limited to whether the Rule has "a rational basis and is not unreasonable, arbitrary or capricious. An administrative agency's exercise of its rule-making powers is accorded a high degree of judicial deference, especially when the agency acts in the area of its particular expertise."
Consolation Nursing Home, Inc. v. Comm'r of NY State Dept. of Health, 85 NY2d 326, 331 (1995). The Commission may not act unreasonably, capriciously, or arbitrarily in refusing to approve a contract submitted for its approval. See Christensen v. Helfand, 208 Misc. 302, 305 (Sup.Ct. NY County 1955) (dismissing challenge to Commission's refusal to approve contract and sanction proposed fight, where Commission's application of its Rules was neither arbitrary nor capricious).
Here, no one has argued that the Rules or their application is arbitrary or capricious, and it would not appear that the Rules at issue are arbitrary or capricious. Indeed, New York courts have enforced the Rule that contracts setting up a boxing match must be filed with and approved by the Commission. E.g. Norris v. Don King Prods., Inc., N.Y.L.J., June 26, 1997, at 29 (Sup.Ct. NY County 1997) (Ramos, J.) (granting preliminary injunction preventing defendants from enforcing a fight agreement, finding "a serious question as to [its] legality," in part because it had not been filed with or approved by the Commission).
For instance, in Baksi, the First Department refused to enforce a contract between a boxer and his managers, even though it had already been partly performed, because it violated New York boxing law. Baksi v. Wallman, 271 A.D. 422, 425-26 (1st Dept. 1946). The Court in Baksi explained that the contract at issue violated the boxing law in five respects; it:
(1) provides for payment to the managers of more than 33 1/3% of the boxer's earnings; (2) is for five years; (3) provides for two managers instead of one; (4) was never filed with or approved by the State Athletic Commission; and (5) [the defendant] was never licensed as a manager by the State Athletic Commission.
Baksi, 271 A.D. at 425. The Court went on to say that "[i]n all these respects the contract in question violated the boxing law and the commission's rules for its enforcement." Id. at 425-26 (emphasis added).
Plaintiffs argue that Baksi's holding does not apply here, because Baksi held a contract unenforceable because the object of the contract i.e., the payment provisions, the five-year term, etc. was illegal, and not because the contract had not been filed with or approved by the Commission. Plaintiffs' interpretation is contradicted by the plain language of the decision, which holds that the contract violated the law in "all these respects." The violations of the boxing law and Rules cited by the Court included the fact that the contract "was never filed with or approved by the State Athletic Commission." Baksi, 271 A.D. at 425-26.
It is undisputed that, in this case, no one signed a written contract or submitted any contract to the Commission with respect to the Klitschko-Briggs fight. I am bound by Baksi to conclude that the contract as alleged in the Complaint is invalid and unenforceable under the boxing statute and the Commission's Rules. Defendants cannot be liable for breach of an illegal contract.
Plaintiffs aver, however, that, in the boxing industry, it is "common practice" for promoters to act in reliance on an oral agreement containing the material terms setting up a fight, and contracts are typically approved by the Commission "at the time of a weigh-in immediately preceding a fight." (Kushner Aff. ¶ 29-31.) Regardless of whether plaintiffs are right about the common practice of boxing promoters, participants in a regulated industry, such as boxing, cannot invoke the common law of custom and usage to circumvent a regulatory scheme.
Furthermore, the doctrine of unclean hands is not properly invoked here, as this is an action for damages. See Manshion Joho Ctr. Co., Ltd. v. Manshion Joho Ctr, Inc. , 24 AD3d 189, 190 (1st Dept. 2005) ("The doctrine of unclean hands is an equitable defense that is unavailable in an action exclusively for damages").
I have considered plaintiffs' other arguments in support of their breach of contract claim and find them unmeritorious.]
In particular, I disregard all allegations made at oral argument by plaintiffs' counsel which were not supported by the allegations of the Complaint or the affidavits submitted in support of this motion, as well as all speculation by plaintiffs as to what other persons might testify to; such speculation does not satisfy plaintiffs' obligation to produce affidavits to remedy defects in the Complaint.
Consequently, the first cause of action for breach of contract is dismissed.
B.Breach of the implied covenant of good faith and fair dealing
The motion to dismiss the second cause of action for breach of the implied covenant of good faith and fair dealing is granted, because any such claim must be based on an enforceable contract between the parties. See Schorr v. Guardian Life Ins. Co. , 44 AD3d 319, 843 NYS2d 24, 25 (1st Dept. 2007) (upholding dismissal of claim for breach of the implied covenant of good faith and fair dealing since plaintiff "did not demonstrate the existence of a valid contract from which such a duty would arise"). Here, the alleged contract was illegal and unenforceable. Therefore, the second cause of action for breach of the implied covenant of good faith and fair dealing is dismissed.
C. Fraudulent misrepresentation
In the third cause of action (misnumbered in duplicate in the Complaint as the sixth) for fraudulent misrepresentation, the Complaint alleges that Finkel, acting on behalf of all defendants, repeatedly told plaintiffs that "our fight is definitely taking place," when he knew that this statement was false and misleading. (Compl. ¶ 69.)
"[O]ne who fraudulently makes a misrepresentation of intention for the purpose of inducing another to act or refrain from action in reliance thereon in a business transaction is liable for the harm caused by the other's justifiable reliance upon the misrepresentation." Channel Master Corp. v. Aluminum Ltd. Sales, Inc., 4 NY2d 403, 407 (1958) (internal quotations and citations omitted). In Channel Master, the complaint alleged that the plaintiff refrained from entering into long-term supply contracts with other suppliers, in reliance on the defendant's representation that it had enough aluminum ingots to supply the plaintiff's needs for five years and had no other binding supply agreements. Meanwhile, unbeknownst to the plaintiff, the defendant was bound by contracts to supply all of its aluminum ingots to other entities. Based on these facts there was no contract between the defendant and plaintiff the Court of Appeals upheld a claim for fraudulent misrepresentation.
A fraud claim, since it lies in tort, not contract, depends "not upon agreement between the parties, but rather upon deliberate misrepresentation of fact, relied on by the plaintiff to his detriment." Therefore, "one who fraudulently misrepresents himself as intending to perform an agreement is subject to liability in tort whether the agreement is enforcible [sic] or not." Channel Master, 4 NY2d at 408. Although the defendant's oral promise in Channel Master may have been unenforceable under contract law under the Statute of Frauds, and there was no written contract, the Court explained: "It is not a case of prophesy and prediction of something which it is merely hoped or expected will occur. . ., but a specific affirmation of an arrangement under which something is to occur, when the party making the affirmation knows perfectly well that no such thing is to occur." Id. "Such statements and representations when false are actionable." Id.
The Court of Appeals has reached the same result when there was an agreement between the parties: "A false statement of intention is sufficient to support an action for fraud, even where that statement relates to an agreement between the parties." Graubard Mollen Dannett Horowitz v. Moskovitz, 86 NY2d 112, 122 (1995); accord Tribune Printing Co. v. 263 Ninth Ave. Realty, Inc., 57 NY2d 1038, 1041 (1982) ("a false statement, promissory in nature, may be deemed the statement of a material existing fact, because it falsely represents the declarant's state of mind and the state of his mind is a fact") (internal quotation omitted); Sabo v. Delman, 3 NY2d 155, 160 (1957) (upholding fraud claim based on alleged misrepresentations made to induce plaintiff to enter into contracts, where representations were separate from those promises set forth in contracts); see also New York Univ. v. Continental Ins. Co., 87 NY2d 308, 316 (1995) (dismissing fraud claim, where complaint alleged no "misrepresentation or material omission by defendant, on which it relied" in taking or refraining from taking some action).
For instance, in Graubard, retiring senior partners executed a retirement agreement in which they agreed in "spirit" not to "do anything to impair the firm's relationship with its existing clients and business" and to "integrate, to the extent possible, relationships between the firm's clients and the other partners" after retirement. 86 NY2d at 116. The complaint alleged that a retiring partner also made an oral representation, in connection with the presentation of this agreement to the other partners, that he and the other retiring partners would act to ensure the future of the firm by integrating and institutionalizing the clients. The complaint further alleged that he never intended to do so and was, all the while, considering forming a competing partnership. Id. at 122. Although the content of the alleged oral misrepresentation was virtually identical to the content of the contractual provision that he allegedly violated, the Court of Appeals upheld a fraudulent misrepresentation claim based on this oral representation, affirming that "a false statement of intention is sufficient to support an action for fraud, even where that statement relates to an agreement between the parties." Id. (Kaye, C.J.).
The First Department has repeatedly confirmed and applied the principle that a fraud claim can be maintained, even where it is based on conduct or assurances that have some relation to the facts of a breach of contract claim. E.g. Richbell Info. Servs., Inc. v. Jupiter Partners, L.P., 309 AD2d 288, 305 (1st Dept. 2003) (acknowledging in dicta that "a false statement of intention can be sufficient to support a claim of fraud"); H.B. Int'l, Ltd. v. Kahan Jewelry Corp., 266 AD2d 77, 78 (1st Dept. 1999) (upholding jury's fraud verdict, where proof established that plaintiff had been induced by defendants' deliberate misrepresentation of their intentions into turning over certain funds, "even where that statement relates to an agreement between the parties"); Century 21, Inc. v. F.W. Woolworth Co., 181 AD2d 620, 625 (1st Dept. 1992) (finding that plaintiff stated a fraud claim against Woolworth based on its alleged misrepresentation that there was no asbestos in a letter that was a condition of closing on the sale of the premises, because fraud claim "[wa]s entirely independent of the contractual relation between the parties").
A distinction albeit a fine one can be drawn between the above cases, in which appellate courts have upheld fraud claims in cases involving related breach of contract claims, from cases in which courts have dismissed fraud claims as merely duplicative of a breach of contract claim or based merely on future expectation.
As a starting point, the First Department has observed that "a fraud claim may be dismissed as duplicative only as against a defendant against whom the related contract claim is viable." Richbell, 309 AD2d at 305.
Furthermore, the First Department has repeatedly dismissed fraud claims as duplicative when the fraud cause of action adds no new allegation to the breach of contract claim, apart from the addition of the word "fraudulently." E.g., Richbell, 309 AD2d at 305 (dismissing fraud claim as duplicative that was based on same facts underlying the contract claim); J.E. Morgan Knitting Mills, Inc. v. Reeves Bros., Inc., 243 AD2d 422, 423 (1st Dept.1997) (upholding dismissal of fraud claim as duplicative of contract claim, where fraud claim was "based on the same facts as underlie the contract claim" and was not merely "collateral to the contract").
The First Department has also dismissed fraud claims based on future expectation, where they were based merely on a vague allegation that the defendant never intended to comply with a particular contract. E.g., Coppola v. Applied Elec. Corp., 288 AD2d 41, 42 (1st Dept. 2001) (affirming dismissal of fraud claim, based on the mere allegation that defendant "harbored the undisclosed intention from the outset to never comply" with the parties' agreement, as duplicative of his breach of contract claim); Modell's NY Inc. v. Noodle Kidoodle, Inc., 242 AD2d 248, 249-50 (1st Dept. 1997) (affirming summary judgment dismissal of fraud claim based on "mere . . . allegations that the contracting parties did not intend to meet their contractual obligations" and did not plead the circumstances of fraud with particularity); Chase v. United Hosp., 60 AD2d 558, 559 (1st Dept. 1977) (dismissing on summary judgment a cause of action alleging "fraud" in the inducement of employment contract based merely on claim that defendant "never intended to" honor contractual promise).
The critical factual distinction between Graubard, in which the Court of Appeals upheld a fraud claim that was related to a contract claim, and Coppola, in which the First Department dismissed a fraud claim as duplicative, seems to be that in Graubard, the fraud claim was based on a particular oral assurance offered by the defendant, in addition to the promises recorded in the written agreement, and the fraudulent intent "was not asserted in conclusory fashion but was evidenced by defendant's conduct shortly after entering into the agreement." Coppola, 288 AD2d at 42. In contrast, in Coppola, the plaintiff did not refer to any particular representation or conduct by the defendant other than that reflected in the terms of the agreement.
The holding of Miller v. Volk Huxley Inc., 44 AD2d 810 (1st Dept. 1974), cited by defendants, does not require a contrary conclusion. In Miller, the Court affirmed the dismissal of a cause of action for "fraudulent breach of contract" as redundant of the breach of contract claim, because the only difference between the fraud claim and the breach of contract claim was the additional allegation that the defendants' promises which formed the basis of the breach of contract claim were false and fraudulent. 44 AD2d at 810. Miller's holding fits into the class of First Department cases that have recognized that a fraud claim must allege a specific promise or statement, in addition to the statements contained in the contract, if it is not to duplicate the breach of contract claim. Miller's holding is thus comparable to the holdings in Coppola and J.E. Morgan, though Miller goes further in a dictum, in which it states that "a cause of action for fraud will not arise when the only fraud charged relates to a breach of contract." Miller, 44 AD2d at 810.
It is difficult to reconcile this statement with the holdings in Graubard, Clear Channel, and Sabo, unless one reads it to mean that a fraudulent misrepresentation claim is barred, where it is based on the same representation that formed the basis of the breach of contract claim. So the rule, as I understand it, is that a cause of action for fraud will not arise if the alleged fraud restates the facts of the breach of contract claim; a fraud claim must be based on some additional representation, omission, or conduct, other than the contract itself, which was fraudulent when performed.
To be sure, the distinction is a fine one. It seems to turn on whether the complaint alleges a particular statement, omission, or other conduct by the defendant, in addition to the text or statements that form the basis of the alleged contract. As Graubard shows, it does not seem to matter that the alleged fraudulent representation is virtually identical to the promise contained in the contract as long as it is made at a different time and place.]
In a handful of other short memorandum decisions, the First Department has repeated Miller's dictum that a "cause of action for fraud does not arise when the only fraud charged relates to a breach of contract." Krantz v. Chateau Stores of Canada Ltd., 256 AD2d 186, 187 (1st Dept. 1998); Trusthouse Forte (Garden City) Mgmt., Inc. v. Garden City Hotel, Inc., 106 AD2d 271, 272 (1st Dept. 1984). These statements are generally broader than necessary to the holdings and therefore can be viewed as dicta. E.g., Krantz, 256 AD2d at 187 (dismissing fraud claim, where the underlying breach of duty "was not collateral or extraneous to the contract" but rather was "the crux of the breach of contract claim"); Trusthouse, 106 AD2d at 272 (dismissing fraud claim that "only state[d] a cause of action for breach of contract and thus [was] redundant"). To the extent that these statements containing the "relates to" language are not purely dicta, I understand them, as in Miller, to mean that a cause of action for fraud will not arise if the fraud charged merely restates a breach of contract claim; a fraud claim must be based on some additional representation, omission, or conduct, other than the contract itself, which was fraudulent when performed.
Under the law set forth in Graubard, Channel Master, and the other cases above, plaintiffs have stated a cause of action for fraudulent misrepresentation.
The Complaint has alleged with particularity that Finkel insisted that plaintiffs cancel a fight and turn down fight invitations in July and August, in reliance on his fraudulent assurances that the Klitschko-Briggs fight would happen, when he knew that defendants did not intend to execute a contract for the Klitschko-Briggs fight or produce Klitschko for that fight, that Finkel acted on behalf of all defendants, and that plaintiffs suffered damages as a result.
The fraud claim is not redundant of the failed breach of contract claim, for two reasons.
First, here there is no valid contract only representations upon which plaintiffs relied. Where there is no viable breach of contract claim, the fraud claim cannot be dismissed as duplicative of it. See Richbell, 309 AD2d at 305.
Second, the alleged fraudulent misrepresentations are not the same as those on which the alleged oral contract on June 16 was based. The fraud claim is based on a series of assurances, omissions, and conduct by Finkel after June 16 none of which are part of the oral agreement that plaintiffs claim the parties reached on June 16.
Defendants also allege that plaintiffs' reliance on Finkel's alleged assurances and conduct was not reasonable, because no written contract had been prepared or approved by the Commission.
But here, defendants seem to confuse the fraud claim and the breach of contract claim. There is no question that the contract as alleged is unenforceable under the boxing law. Even if it were common practice in the industry not to obtain Commission approval, plaintiffs could not circumvent the boxing law's requirement that contracts be approved by the Commission.
But the fraud claim does not hinge on the validity of the alleged agreement. Rather, it is based on the allegation that plaintiffs suffered damages because they relied on Finkel's fraudulent assurances and conduct in cancelling a fight and turning down fight invitations, at defendants' insistence, and in preparation for the November 11 fight, while they waited for defendants to finalize the contract and submit it to the Commission.
No one has alleged that plaintiffs violated the boxing law or Rules by doing so. The Rules require that contracts be filed with the Commission within 48 hours of their execution and at least ten business days before the fight is to take place. 19 NYCRR § 208.18. When negotiations broke down in late August, neither deadline had yet passed for the Klitschko-Briggs fight; the fight was still months away. If, as Kushner alleges, it is "common practice within boxing" for parties to prepare for a fight in reliance on oral assurances, while they prepare the written contract to submit for the Commission's approval, (Kushner Aff. ¶ 29), I am unaware of anything in the Commission's Rules that bars them from doing so. The fact that the informal agreement is unenforceable does not make plaintiffs' reliance on Finkel's assurances and conduct during the contract negotiations unreasonable. Where, as here, the case for reasonable reliance is a close one, on a motion to dismiss, I will resolve the issue in favor of the non-moving party.
In the Uniform Commercial Code context, the First Department has indicated that parties can reasonably rely on each other's oral representations, when it is the custom of the industry to do so, although they anticipate later formalizing their arrangement in writing. See Louis Dreyfus Energy Corp. v. MG Refining Mktg., Inc., 4 AD3d 149, 149-50 (1st Dept. 2004) (upholding trial court's finding that parties were bound by their oral agreement, "[i]n light of the custom in the industry favoring such flexible' oral agreements, notwithstanding the absence of a formal written confirmation" that was sent shortly thereafter).
Finally, defendants assert that the fraud claim ought to be dismissed as to defendants Klitschko and K2, because the Complaint does not allege fraudulent misrepresentations or conduct by them.
But the issue is not whether Klitschko personally made a fraudulent representation, but whether the Complaint has stated a claim that Finkel acted as the agent of Klitschko and K2 during the alleged fraudulent conduct.
"Generally, principals are liable for the acts of their agents performing within the scope of their apparent authority." News Am. Mktg., Inc. v. Lepage Bakeries, Inc. , 16 AD3d 146, 148 (1st Dept. 2005). "[A] principal may be held liable in tort for the misuse by its agent of his apparent authority to defraud a third party who reasonably relies on the appearance of authority, even if the agent commits the fraud solely for his personal benefit, and to the detriment of the principal." Parlato v. Equitable Life Assur. Soc'y, 299 AD2d 108, 113 (1st Dept. 2002).
The Complaint alleges that Finkel acted at all times "on behalf of himself and as agent, representative, employee or alter-ego'" of defendants Shelly Finkel Management, Inc., Klitschko, and K2. (Compl. ¶ 8-9.) Defendants have not denied that Finkel worked as a promoter for Klitschko during the relevant time period. The Complaint further alleges that Klitschko and K2 did not ask for a retraction of the news articles publicizing the anticipated Klitschko-Briggs fight arranged by Finkel; that Tom Loeffler made representations about the Klitschko-Briggs fight to plaintiffs on behalf of K2; and that Finkel challenged Maskaev to a fight against Klitschko at a press conference. Defendants have not argued that either Finkel or Loeffler exceeded the scope of their authority as an agent of K2 or Klitschko in so acting.
I conclude that Plaintiffs have met their burden of stating a claim that Klitschko and K2 are liable for the allegedly fraudulent conduct by Finkel.
I reject defendants' remaining arguments regarding the fraud claim as unmeritorious. I conclude that plaintiffs have stated a claim of fraud against all defendants. Therefore, the third cause of action survives the motion to dismiss.
Defendants also maintain that plaintiff's fraud claim is barred as an impermissible attempt to circumvent the Statute of Frauds. In support of this argument, they cite Roberts v. Champion Int'l Inc., which stated: "Whatever the form of the action at law may be, if the proof of a promise or contract, void by the statute of frauds, is essential to maintain it, there can be no recovery." 52 AD2d 773 (1st Dept. 1976) (internal quotations omitted). The quoted language in Roberts was based on Dung v. Parker, in which the Court of Appeals held that a fraud claim could not be based on an oral promise to enter into a two-year lease of real property that was void under the Statute of Frauds. 52 NY 494 (1873). Dung has not been cited for any proposition by the Court of Appeals since 1922, except for a dissent in Farash v. Sykes Datatronics, Inc., 59 NY2d 500 (July 12, 1983).
Dung appears to have been overruled sub silentio in Farash, in which the Court upheld a quasi contract claim based on an oral promise concerning a lease of real property for more than one year, where the contract itself was void under the Statute of Frauds. Farash's reasoning that "a promisee who partially performs . . . at a promisor's request should be allowed to recover the fair and reasonable value of the performance rendered, regardless of the enforceability of the original agreement," Farash, 59 NY2d at 506 was essentially the opposite as Dung's reasoning. Consequently, Dung's holding and the quoted statement from Roberts appear no longer to be good law after Farash. Indeed, Dung has not been cited by the First Department since Farash was decided.
Furthermore, based on reading the First Department's decision in Roberts, Roberts's holding does not appear to apply to fraud claims. Roberts dismissed a complaint, in which the plaintiff sought to enforce an oral promise that was barred by the Statute of Frauds, via theories of quantum meruit and "wrongful interference with an impairment of plaintiff's contractual rights." Roberts, 52 AD2d 773. Nowhere did the Court indicate that a fraud claim had been pled or was being dismissed. So the quoted statement from Roberts appears to be a dictum as applied to fraud claims.
D. Aiding and abetting
In the fourth cause of action (misnumbered as the seventh in the Complaint) for aiding and abetting, the Complaint alleges thatdefendants aided and abetted the perpetration of acts "previously set forth herein." (Compl. ¶ 73.)
Insomuch as the Complaint alleges that defendants aided and abetted a breach of contract or breach of the implied covenant of good faith and fair dealing, I will construe this claim as a claim for tortious interference with contract. As such, it must fail, because such a claim "requires the existence of a valid contract." Lama Holding Co. v. Smith Barney Inc., 88 NY2d 413, 424 (1996). Here, the alleged contract is not valid, and so this cause of action must fail insofar as it alleges tortious interference with contract.
A claim for aiding and abetting fraud requires: (1) a fraud on another, (2) that the defendant knowingly induced or participated in the fraud, and (3) that plaintiff suffered damage as a result of the fraud. Cf. Kaufman v. Cohen, 307 AD2d 113, 125 (1st Dept. 2003) (stating elements of claim for aiding and abetting a breach of fiduciary duty). Ordinarily, an aiding and abetting claim must assert that the defendants had "actual or constructive knowledge of the misconduct and substantially assisted therein." Liberman v. Worden, 268 AD2d 337, 338 (1st Dept. 2000). "Where liability for fraud is to be extended beyond the principal actors, to those who, although not participants in the fraudulent scheme, are said to have aided in and encouraged its commission, it is especially important," Nat'l Westminster Bank USA v. Weksel, 124 AD2d 144, 149 (1st Dept. 1987), that "[t]he circumstances constituting the wrong shall be stated in detail," CPLR § 3016(b).
With regard to Shelly Finkel Management, Inc., plaintiffs already have stated a claim that Shelly Finkel Management, Inc. committed fraud through the acts of Finkel. Defendants have not contested plaintiff's assertion that Finkel has authority to act on behalf of Shelly Finkel Management, Inc., which is allegedly his promotion company. As such, plaintiffs are not really claiming that Shelly Finkel Management, Inc. aided and abetted fraud, but that it committed fraud. As such, the fourth cause of action for aiding and abetting is dismissed as to defendant Shelly Finkel Management, Inc.
With regard to Klitschko and K2: as discussed, supra in the fraud discussion, plaintiffs have stated a claim that Klitschko and K2 are liable for Finkel's alleged fraud. As such, plaintiffs are not really claiming that Klitschko and K2 aided and abetted fraud, but that they committed fraud.
Insofar as the Complaint is alleging in the alternative that Klitschko and K2 aided and abetted Finkel's fraud, the Complaint does not state the circumstances of Klitschko and K2's independent participation in the fraud with sufficient detail to survive CPLR § 3016(b).
Consequently, the fourth cause of action for aiding and abetting is dismissed.
E.Prima facie tort
The fifth (misnumbered as the eighth) cause of action for prima facie tort is dismissed, because it fails to allege the necessary element that the sole motivation for defendants' alleged conduct was to cause harm to plaintiffs. See Curiano v. Suozzi, 63 NY2d 113, 117 (1984) (dismissing cause of action for prima facie tort insofar as it failed to plead that the sole motivation for the action was "disinterested malevolence") (internal citations omitted). On the contrary, the Complaint repeatedly alleges that defendants acted in large part to serve their selfish interests in keeping the date open so that they could arrange a different fight for Klitschko with an opponent other than Briggs. This motivation is not malevolent, but self-interested, and so it cannot be the basis of a prima facie tort claim. Accordingly, the fifth cause of action for prima facie tort is dismissed.
F.Promissory estoppel
In the sixth (misnumbered as the ninth) cause of action for promissory estoppel, the Complaint alleges that plaintiffs reasonably and foreseeably relied to their detriment on defendants' promise that the fight would take place, and that defendants reneged on that promise. Plaintiffs seek at least their out-of-pocket losses as a result of cancelling the July 26 fight, in reliance on Finkel's promises.
A cause of action for promissory estoppel must allege "a clear and unambiguous promise by defendants upon which [the plaintiff] reasonably and foreseeably relied to its detriment." 401 Hotel, L.P. v. MTI/The Image Group, Inc., 251 AD2d 125, 126 (1st Dept. 1998); accord Ripple's of Clearview, Inc. v. Le Havre Assocs., 88 AD2d 120, 122 (2nd Dept. 1982). The First Department has also cited Swerdloff v. Mobil Oil Corp., 74 AD2d 258 (2nd Dept. 1980) for the proposition that a cause of action based on promissory estoppel is "reserved for a limited class of cases based on unusual circumstances." Tribune Printing Co. v. 263 Ninth Ave. Realty, Inc., 88 AD2d 877, 879 (1st Dept. 1982), aff'd, 57 NY2d 1038, (1982).
Swerdloff states that, under New York law, there are two categories of promissory estoppel claims: one in which promissory estoppel is used as a substitute for consideration, (which is reserved for unusual circumstances), and another where promissory estoppel is used to bar the assertion of the Statute of Frauds. 74 AD2d at 261. In the second category, "the circumstances [must] be such as to render it unconscionable to deny the oral promise upon which the promisee has relied." Id. at 263 (internal quotations omitted); see also Melwani v. Jain, 281 AD2d 276, 277 (1st Dept. 2001) (affirming dismissal of promissory estoppel claim used "to circumvent the Statute of Frauds since there is neither allegation nor proof of the infliction of unconscionable injury on plaintiff").]
Swerdloff concerned only the second case, so its statement regarding when promissory estoppel is reserved for unusual circumstances, which was cited by the First Department in Tribune, was a dictum. In any case, Ripple's, a subsequent Second Department decision, which has been cited repeatedly by the First Department, did not apply Swerdloff's narrow definition of promissory estoppel. See Ripple's, 88 AD2d at 122-23 (dismissing promissory estoppel claim that failed to allege elements of a clear and unambiguous promise, reasonable and foreseeable reliance, and injury); see, e.g., Knight Sec. L.P. v. Fiduciary Trust Co., 774 NYS2d 488 {5 AD3d 172} (1st Dept. 2004); Plaza v. Estate of Wisser, 626 NYS2d 446 {211 AD2d 111} (1st Dept. 1995); Isler v. Sutter, 198 AD2d 68, 68 (1st Dept. 1993) (evidence adequately supported trial judge's conclusion that law firm "was liable to plaintiff under the theory of promissory estoppel" based on a representation on which plaintiff relied in foregoing commencement of another litigation).
Since defendants have not argued that there was no consideration for the alleged promise, this case does not appear to fall into the first category. Thus, I will address whether this case falls into the second category. At first glance, the unconscionability test would seem not to apply, since the requirement that the contract be in writing comes not from the Statute of Frauds, as in Melwani and Swerdloff, but from the boxing statute and Rules. But the rationale for the unconscionability test applies at least equally well here: Boxing is a regulated industry, in which participants' ability to contract is subject to serious limitations. It would seem to controvert the purpose of the boxing statute to permit parties to avoid the writing requirement by resorting to promissory estoppel, except upon a showing of unconscionability. I do not find that plaintiffs have alleged facts upon which a finding of unconscionability could be made. Consequently, based on Melwani and Swerdloff, plaintiffs have failed to state a claim for promissory estoppel, and the sixth cause of action is dismissed.
Finally, defendants' request for sanctions and for an award of attorneys' fees is denied.
Accordingly, it is
ORDERED that the motion to dismiss is granted in part and denied in part; and it is further
ORDERED that the first, second, fourth, fifth, and sixth causes of action are dismissed.