Opinion
35625-10.
Decided August 8, 2011.
CAMPOLO, MIDDLETON ET ALS, Bohemia, NY, Attys. for Plaintiff.
ROSENBERG, CALICA BIRNEY, LLP, Garden City, NY, Attys. for Defendants.
Upon the following papers numbered 1 to 11 read on this motion to dismiss; Notice of Motion/Order to Show Cause and supporting papers 1-3; Notice of Cross Motion and supporting papers; Answering Affidavits and supporting papers 4-5; Replying Affidavits and supporting papers 6-7; Other 8-9 (memorandum); 10-11 (memorandum); (and after hearing counsel in support and opposed to the motion) it is,
ORDERED that this motion (#002) by the defendants for dismissal of the plaintiff's complaint, is considered under CPLR 3211(a) and is granted to the extent set forth below; and it is further
ORDERED that a preliminary conference is scheduled for September 23, 2011, at 9:30 a.m., in Part 33, at the courthouse located at 1 Court Street — Annex, Riverhead, New York.
Plaintiff commenced this action to recover damages by reason of the defendants' breach of contractual and fiduciary duties and by reason of their purported engagement in acts of fraud. The claims asserted herein arise out of two agreements executed by the plaintiff and the corporate defendants in January of 2009. By the first of said agreements (hereinafter APA [Asset/Purchase Agreement]), defendant, JD Transportation, LLC, by its members, defendants Douglas Slayton and Gregory Slayton, sold to the plaintiff certain assets and liabilities of such defendant's bus transportation business known as the "Hampton Luxury Liner". By its terms, the APA contemplated that a separate Limited Liability Company, co-owned by the plaintiff and defendant, Sy Bus Advertising, LLC, an affiliate company owned by the Slaytons, would be formed to provide advertising rights and revenues that would be shared by the joint venturers. A joint venture Limited Liability Agreement was executed by the plaintiff and defendant Sy Bus Advertising, LLC on January 24, 2009, the same date as the APA. On February 17, 2009, the sale of the assets and liabilities set forth in the APA closed and the joint venture between the plaintiff and defendant Sy Bus Advertising, LLC, began.
By the complaint served and filed herein, the plaintiff alleges that the Slayton defendants and the seller, defendant JD, made various fraudulent representations and failed to disclose material facts in connection with the APA at various times. It is further alleged that the seller, JD, the only defendant signatory to the APA, breached various provisions thereof. The plaintiff also demands recision of the joint venture agreement between the plaintiff and defendant, Sy Bus Advertising, LLC [hereinafter SBA], due to purported acts of fraudulent inducement on the part of some or all of the defendants.
By the instant motion, the defendants seek dismissal of the plaintiff's complaint pursuant to CPLR 3211(a)(1) and 3211(a)(7). For the reasons set forth below, the motion is granted to the extent set forth below.
The FIRST, SIXTH and EIGHTH causes of action set forth in the complaint sound in contract by which the plaintiff seeks damages from defendant JD for its alleged breaches of the APA. This claim is legally insufficient since the plaintiff agreed, in Paragraph 7(a) of the APA to limit its contract remedies to indemnity. It is well settled law that "[A] limitation on liability provision in a contract represents the parties' agreement on the allocation of the risk of economic loss in the event that the contemplated transaction is not fully executed, which the courts should honor" ( Metropolitan Life Ins. Co. v Noble Lowndes Int'l., Inc. , 84 NY2d 430, 618 NYS2d 882). Thus, a contractual provision which limits damages will be enforced unless a special relationship exists between the parties, or a statute or public policy imposes liability despite the restrictions set forth in the contract ( see Duane Reade v 405 Lexington, LLC , 22 AD3d 108 , 800 NYS2d 664 [1st Dept 2005]). For example, the public policy of this State does not allow a party to insulate itself from grossly negligent conduct ( see Colnaghi USA v Jewelers Protection Servs. , 81 NY2d 821, 823, 595 NYS2d 381; Smith-Hoy v AMC Prop. Evaluations, Inc. , 52 AD3d 809 , 862 NYS2d 513 [2d Dept 2008]). Where sophisticated parties have voluntarily entered into contracts containing limitation on liability provisions, a court may set aside the provisions only where defendant's conduct constitutes egregious intentional misbehavior evincing extreme culpability such as malice, recklessness, deliberate or callous indifference to the rights of others, or an extensive pattern of wanton acts ( see Sommer v Federal Signal Corp. , 79 NY2d 540, 583 NYS2d 957). An allegation that a breach of contract was willful rather than involuntary does not allow a court to disregard an unambiguous limitation of liability provision agreed to by parties of equal bargaining power ( see Metropolitan Life Ins. Co. v Noble Lowndes Int'l., Inc , 84 NY2d at 435, supra).
Here, the APA expressly limited the plaintiff's contractual remedies to indemnity ( see APA ¶ 7[a]) and to claims of fraud or wilful misconduct. The plaintiff's inclusion of allegations that JD's purported breach of the APA was wilful does not warrant a finding that the plaintiff's claims that JD wilfully breached the APA were not within the scope of the limitations on JD's liability that are set forth in paragraph 7(a) of the APA. Defendant JD is thus entitled to dismissal of the plaintiff's FIRST and EIGHTH causes of action sounding in breach of contract pursuant to CPLR 3211(a)(1). To the extent that the SIXTH cause action sounds in breach of the APA, as it is denominated as such in the complaint, it is likewise dismissed. To the extent that it sounds in fraud, it continues.
Also dismissed is the plaintiff's NINTH cause of action sounding in contractual indemnity. The defendants have demonstrated that this claim fails to state a cause of action for indemnity against defendant Douglas Slayton, since he is not a signatory to the APA and there are no allegations that he acted in any personal or individual capacity ( see APA and Rider thereto attached to moving papers as Exhibit B; see also Village Auto Ctr., Inc. v Haimson , 72 AD3d 805 , 898 NYS2d 479 [2d Dept 2010]). Although the Rider to the APA provides for execution by Douglas Slayton in his individual capacity "for all indemnity provisions," there is no indication that he signed the Rider in such capacity on the space provided. Indeed, plaintiff's counsel, in paragraph 64 of his affirmation in opposition dated February 9, 2011, asserts that "the signatories to the APA are Hampton [plaintiff] and JD only." It is the same for the Rider, which appears to have been executed on the same date as APA. The NINTH cause of action to the extent it is asserted against Douglas Slayton is thus dismissed pursuant to CPLR 3211(a)(1).
However, the court rejects defendant's claims that the plaintiff's pleaded claims for indemnification against defendant JD fail to state a cause of action, since there are no allegations that the plaintiff paid any third party or is liable under a judgment to pay any third party any of the items listed in paragraph 78 of the complaint( see Veraldi v American Analytical Lab., Inc. , 271 AD2d 599, 706 NYS2d 158 [2d Dept 2000]). It appears from the record that the plaintiff voluntarily honored tickets and bus charters that were purchased prior to the closing but used thereafter. Under the terms of the APA, the plaintiff assumed those liabilities to the extent they were disclosed in writing ( see Section 1 of the APA). In Section 7, paragraph (a) of the APA, defendant JD agreed to indemnify the plaintiff for all liabilities which are not Assumed Liabilities and for any claims made by third parties arising out of any transaction or obligation of the Seller prior to the closing date which are not Assumed Liabilities by reason of the Seller's use, sale or operation of the Acquired Assets prior to the closing date ( see APA Section 7 ¶ [a][iv]; [v]). In light of this contractual provision, it has not been established that the NINTH cause action, to the extent it is asserted against defendant JD, fails to state a claim or is otherwise legally insufficient.
The moving papers also established that the plaintiff's SEVENTH cause of action, sounding in fraud, is legally insufficient. These claims are premised upon allegations that the plaintiff agreed in the APA to sub-lease four buses which JD leased from a third-party. After entering into the APA, defendant JD disclosed that the it owed past due rent on the four buses. The plaintiff further alleges that defendant Gregory Slayton represented that JD would wire the overdue rent payments to the third party owner thereby preventing re-possession of the buses by such owner. These statements are alleged to have been false when made as the buses were re-possessed by the owner. However, the defendant established that in paragraph A(4) of the Rider to the APA, the following sections of the APA were deleted in their entirety: Section 2(i) [Seller's Buses], Section 2(j) [Operations]; and Section 2(k) [Run Obligations]. Under these circumstances, the re-possession of the buses caused no actionable harm to the plaintiff. In addition, in paragraph B of the Rider, the plaintiff expressly and unconditionally waived at closing, any alleged non-compliance with the obligations or covenants in the above cited paragraphs of the APA. The court thus finds that the plaintiff s claims of fraud that as set forth in the SEVENTH cause of action are legally insufficient.
The defendants also seek dismissal of the SECOND, THIRD, SEVENTH, ELEVENTH and TWELFTH causes of action set forth in the complaint on the grounds of contractual disclaimer, all of which are denominated by the plaintiff as claims sounding in fraud in the inducement. The defendants contend that all of these claims are legally insufficient due to the specific disclaimer of reliance provisions set forth in the APA. In support of this position, the defendants rely upon Section 4(k) of the APA. Although the defendants characterize this provision of the APA as an express disclaimer by the plaintiff of reliance on representations and warranties, including oral representations, concerning JD's assets, the acquired assets, liabilities and operations, such claims are not supported by a reading of the language of Section 4(k) of the APA. This provision merely provides that the defendant, JD as the seller, "except as expressly set forth in section 3, the Seller makes no representation or warranty, express or implied, at law or in equity, in respect to any of its assets (including, without limitation, the Acquired Assets), liabilities, or operations and any such other representations or warranties are hereby expressly disclaimed." The plaintiff, as buyer, therein acknowledged that it was purchasing the Acquired Assets on an "as is" and "where is" basis. The provision ends with the following: "without limiting the generality of the foregoing, Seller makes no representations or warranties regarding any asset other than the Acquired Assets, and none shall be implied at law or in equity."
Neither the APA nor the Rider thereto contain any express disclaimers by the plaintiff of its non-reliance on any representations made by the defendants. The absence of such expressions non-reliance warrants a finding that dismissal of the plaintiff's fraudulent inducement claims pursuant to CPLR 3211(a)(1) or (7) has not been sufficiently established ( see DDJ Mgt., LLC v Rhone Group, LLC , 15 NY3d 147 , 905 NYS2d 118). The defendants' citation to and reliance upon case authorities wherein it was held that an express disclaimer of reliance upon representations made by a seller or other contracting party precludes claims of fraudulent inducement are thus misplaced ( see e.g. Laxer v Edelman , 75 AD3d 584, 905 NYS2d 649 [2d Dept 2010] and the cases cited therein; see also Emfore Corp. v Blimpie Assoc., Ltd. , 51 AD3d 434, 860 NYS2d 12 [1st Dept 2008]; S A Realty Mgt. Corp. v Mario , 306 AD2d 339, 760 NYS2d 663 [2nd Dept 2003]). Those portions of the instant motion wherein the defendants seek dismissal of the SECOND, THIRD, SEVENTH, ELEVENTH and TWELFTH causes of action set forth in the complaint on the grounds of disclaimer are thus denied.
However, the defendants' alternative claim that the SECOND cause of action set forth in the complaint fails to state a cause of action for fraudulent inducement because it merely alleges an intent not to disclose rather than a material misrepresentation of an known fact is meritorious. It is well established that an intent not to disclose is not actionable as fraud ( see Manti's Transp. Inc. v CTI Lines, Inc. , 68 AD3d 937, 892 NYS2d 432 [2d Dept 2009]). Absent allegations that a misrepresentation or a material omission of fact which was false and known to be false by defendant, was made for the purpose of inducing the other party to rely upon it, a claim for fraud does not lie ( see Orlando v Kukielka , 40 AD3d 829, 836 NYS2d 252 [2nd Dept 2007]). Here, there are no allegations that any of the defendants made any affirmative misrepresentations ( see Dembeck v 220 Cent. Park S., LLC , 823 NYS2d 45, 33 AD3d 491 [1st Dept, 2006]; Industrial Risk Insurers v Ernst , 224 AD2d 389, 638 NYS2d 109 [2d Dept 1996]). The plaintiff's SECOND cause of action alleges only that the defendants "harbored a then present intent not to disclose the existence of liabilities and obligations of JD arising from or as a result of pre-payment of tickets and/or reservations and/or commitments for charter." To the extent the plaintiff's SECOND cause of action may be considered as one sounding in fraudulent concealment, the court finds that it is legally insufficient, as there is no allegation that the defendants had a duty to disclose ( see Seldin v Smith , 76 AD3d 623, 907 NYS2d 36 [2d Dept 2010]; Barrett v Freifeld , 64 AD3d 736, 883 NYS2d 305 [2d Dept 2009]; see also First Keystone Consultants, Inc. v DDR Constr. Serv. , 74 AD3d 1135, 904 NYS2d 113 [2d Dept 2011]). The plaintiff's SECOND cause of action is thus dismissed pursuant to CPLR 3211(a)(7).
The defendants' demands for dismissal of the plaintiff's FOURTH and ELEVENTH causes of action wherein it seeks recision of the joint venture agreement are granted. The moving papers demonstrated that the plaintiff's claims are barred by principles of res judicata since such claims could have been raised in an arbitration proceeding between them, initiated by defendant Sy Bus against the plaintiff and Hampton Luxury Liner Advertising, LLC as contemplated by the APA and formed under the Joint Venture agreement, that was concluded by a settlement which formed the basis of an arbitration award ( see Spasiano v Provident Mut. Life Ins. Co. , 2 AD3d 1466 , 770 NYS.2d 534 [4th Dept 2003]; McNally Intern. Corp. v New York Infirmary , 145 AD2d 417, 535 NYS2d 388 [2d Dept 1988]). The FOURTH and ELEVENTH causes of action set forth in the plaintiff's complaint are thus dismissed pursuant to CPLR 3211(a)(7).
The defendants' moving papers also established their entitlement to dismissal of the plaintiff's FIFTH cause of action wherein it seeks recovery of damages from the defendants due to their purported breaches of fiduciary duties. It is well settled that the absence of a fiduciary relationship between the parties is fatal to claims for recovery of damages due to a breach of fiduciaries duties ( see Sebastian Holdings, Inc. v Deutsche Bank AG , 78 AD3d 446 , 912 NYS2d 13 [1st Dept 2010]). It is equally well established that in the absence of special circumstances, arms length business transactions do not give rise to fiduciary or other confidential relationships between the parties thereto ( see Seldin v Smith , 76 AD3d 623, 907 NYS2d 36 [2d Dept 2011]; Sebastian Holdings, Inc. v Deutsche Bank AG , 78 AD3d 446 , supra; Dembeck v 220 Cent. Park S., LLC , 33 AD3d 491 , supra; MBIA Ins. Co. v GMAC Mtge. LLC. 30 Misc 3d 856, 914 NYS2d 604 [Sup Ct. New York County 2010]). Since the transaction between the corporate parties at issue in this action appear to have been nothing more than an arm's length business arrangement between sophisticated and experienced parties, no fiduciary relationship arose therefrom ( see Seldin v Smith , 76 AD3d 623, supra; Aerolineas Galapagos, SA v Sundowner Alexandria, LLC , 74 AD3d 652 , 653, 905 NYS2d 152 [1st Dept 2010]). The FIFTH cause of action set forth in the complaint is thus dismissed.
The TENTH cause of action set forth in the complaint sounds in unjust enrichment. Claims for unjust enrichment are predicated upon the fiction of an implied contract which is enforceable under theories of equity ( see Chadirjian v Kanian , 123 AD2d 596, 506 NYS2d 880 [2d Dept 1986]). A claim alleging unjust enrichment may not be maintained where there is a valid and express agreement between the parties which explicitly covers the same specific subject matter for which the implied agreement is sought ( see AHA Sales Inc. v Creative Bath Prods., Inc. , 58 AD3d 6 , 867 NYS2d 169 [2d Dept 2008]; MT Prop., Inc. v Ira Weinstein and Larry Weinstein, LLC , 50 AD3d 751 855 NYS2d 627 [2d Dept 2008]). The defendants' moving papers demonstrate that the plaintiff's claims for unjust enrichment are insufficient due to the existence of the APA and other contracts between the parties governing the same subject matter. Also dismissed is the plaintiff's TWELFTH cause of action which fails to state a claim for fraud in the inducement against defendants JD and Gregory Slayton ( see Eurycleia Partners, LP v Seward Kissel, LLP , 12 NY3d 553 , 883 NYS2d 147; Guberman v Rudder , 85 AD3d 683, ___ NYS2d ___ [1st Dept 2011]).
In view of the foregoing, the instant motion is granted to the extent that the FIRST, SECOND, FOURTH, FIFTH, SIXTH (to the extent it asserts breach of contract claims), SEVENTH, EIGHTH, NINTH (to the extent it is asserted against Douglas Slayton, TENTH, ELEVENTH and TWELFTH causes of action are dismissed pursuant to CPLR 3211(a)(1) and/or 3211(a)(7).
A preliminary conference is scheduled for September 23, 2011 with regard to the remaining claims which are limited to the THIRD cause of action which sounds in fraud in the inducement against all defendants; the SIXTH cause of action, to the extent it asserts claims for fraud against JD; and the NINTH cause of action, to the extent it asserts claims for contractual indemnity against defendant JD.