Opinion
No. 2407 Index No. 652332/19 Case No. 2023-04787
05-30-2024
JTED46, Inc., et al., Plaintiffs-Appellants, v. Espresso Dream, LLC, et al., Defendants-Respondents, Galila Bar, et al., Defendants.
Berry Law PLLC, New York (Eric W. Berry of counsel), for appellants.
Berry Law PLLC, New York (Eric W. Berry of counsel), for appellants.
Before: Moulton, J.P., Scarpulla, Shulman, Higgitt, O'Neill Levy, JJ.
Order, Supreme Court, New York County (Jennifer G. Schecter, J.), entered on or about February 22, 2023, which, after a bench trial on the fraudulent inducement claim, dismissed the complaint, unanimously affirmed, without costs.
In 2014, plaintiffs purchased three restaurants from defendants through asset sales agreements (ASAs). Under the terms of the ASAs, defendants were required to indemnify plaintiffs against any outstanding tax liabilities. After the sales closed, plaintiffs discovered outstanding tax liabilities on all three restaurants in the total amount of $137,897.14. Thereafter, plaintiffs ceased making the installment payments that remained on the promissory note for one of the three restaurants. In 2019, this Court affirmed the award of summary judgment to a corporation controlled by defendants in the amount of $372,887.45 for the amount remaining on the promissory note (see Veg 83, LLC v JTED83, Inc., 169 A.D.3d 558 [1st Dept 2019]).
Plaintiffs then commenced the instant action asserting causes of action for fraudulent inducement and breach of contract, alleging that defendants falsely represented that there were no outstanding tax liabilities and failed to indemnify them for these liabilities as per the ASAs. For the fraudulent inducement cause of action, plaintiffs sought recission and return of the $766,666.56 paid toward the restaurants. Plaintiffs also sought damages for breach of contract.
Contrary to plaintiffs' argument, the court properly instructed plaintiffs to elect either recessionary damages under their fraudulent inducement claim at a bench trial or compensatory damages arising from the alleged breach of contract at a jury trial (see Unisys Corp. v Hercules Inc., 224 A.D.2d 365, 367 [1st Dept 1996], appeal withdrawn, 89 N.Y.2d 1031 [1997]). The fraud claim, which sought rescission of the ASAs, was inconsistent with plaintiffs' breach of contract claim, which sought enforcement of the terms of the ASAs (see Bowen v Mandeville, 95 NY 237, 240 [1884]; Abramson v Leo, 240 AD 343, 357 [1st Dept 1996]). Notably, plaintiffs did not object to this election of remedies and chose to pursue recessionary damages under their fraudulent inducement claim.
After a bench trial, the court properly rejected plaintiffs' claim for rescission of the ASAs. Recessionary damages were unavailable because plaintiffs had an adequate remedy in the ASAs for indemnification of the outstanding tax liabilities, which they chose not to pursue (see Financial Guar. Ins. Co. v Morgan Stanley ABS Capital I Inc., 164 A.D.3d 1126, 1128 [1st Dept 2018]). Plaintiffs' claim for rescission also ran afoul of the promptness requirement (see New York Tel. Co. v Jamestown Tel. Corp. 282 NY 365, 372-373 [1940]). Plaintiffs first learned of the tax liabilities in 2015. They closed the restaurants in 2015 and 2016, thus extinguishing what they would have returned had the ASAs been rescinded, and then waited until 2019 to commence this action (see Glatt v Mariner Partners, Inc. 66 A.D.3d 440, 441 [1st Dept 2009]).
Finally, plaintiffs would not have been entitled to recessionary damages even if they had pursued the breach of contract claim at trial. This was not a case in which the alleged breach, i.e., failure to indemnify plaintiffs for the outstanding tax liabilities, defeated the entire purpose of the contract (cf. Grace v Nappa, 46 N.Y.2d 560, 566 [1979]; City of Schenectady v Edison Exploratorium, Inc., 147 A.D.3d 1264, 1265 [3d Dept 2017]).
Finally, after evaluating the testimony at trial, the court found that plaintiffs did not prove that they would not have purchased the restaurants if they had known of the outstanding tax liabilities and did not show that the restaurants failed because of the tax liabilities. There is no basis for disturbing the court's credibility determinations and factfinding.
We have considered plaintiffs' remaining contentions and find them unavailing.