Opinion
400639/06.
February 3, 2009.
In this action to recapture the amount of a grant of public monies issued to defendant Adirondack International Speedway, LLC (Adirondack) by plaintiff New York State Urban Development Corporation d/b/a Empire State Development Corporation (ESDC), ESDC moves for summary judgment (mot. seq. no. 002), while Adirondack moves for leave to serve opposition papers to ESDC's motion which are untimely (mot. seq. no. 003). Both motions are here consolidated for disposition.
I. Background
In March of 2002, Paul Lyndaker (Lyndaker), principal of Lyndaker Excavating Trucking, LLC (Lyndaker Excavating), approached ESDC about obtaining a grant to develop a motor speedway in upstate New York. Previous to this request, Lyndaker created Adirondack, a limited liability corporation, to own and operate the speedway (the project).
The project, pursuant to a "General Project Plan, was to be instituted in three phases: phase one, in which the basic infrastructure, such as bleachers and concession stands, and the layout of three oval race tracks, would be completed; phase two, involving the completion of "quarter and a half mile tracks"; and phase three, involving the completion of a .9 mile oval banked racetrack and 1.5 mile road course. Phase one was expected to cost an estimated $4 million, while phase two was expected to cost an estimated $1.4 million. Phase one was completed in 2001. The grant in question involved phase two.
ESDC provided Adirondack with a grant of $300,000 under the terms of a Working Capital Grant Agreement (Agreement) (Notice of Motion for Summary Judgment, Ex. 8). The retention of the grant was dependant on several criteria, including the creation and retention of jobs.
This action rests on the provisions in the Agreement concerning employment goals. Pursuant to Schedule C of the Agreement (Notice of Motion for Summary Judgment, Ex. C), in consideration of making the grant, "[Adirondack] has agreed to achieve the Employment Goals as set forth in Column C of the table below." According to Column C, Adirondack was to create and retain 0 jobs in 2003, and 33 jobs in each year following, up to January 2007. Failure to meet the employment goal of 33 jobs by January 1, 2004 would require Adirondack to return 100% of the disbursed grant. After that time, a failure to meet the employment goals in each year following up to January 2007 would result in Adirondack's having to reimburse ESDC for a lesser and lesser percentage, down to 40% by January 2007.
The Agreement, in paragraph 8 (a), provided that any failure of Adirondack to meet the minimum employment goals set forth in Schedule C would constitute a default by Adirondack (id., ¶ 8 [a] [iv]), as would any failure to "comply with any request for information reasonably made by ESDC to determine compliance by [Adirondack]" with the terms of the Agreement. Id., ¶ 8 (a) (ii)
Apparently, Adirondack was in default as of January 2004, having failed to create 33 new jobs. In August 2004, Adirondack requested that ESDC modify the Agreement to allow Adirondack to defer the job creation goals for one year, through January 2008. Under a letter dated August 2, 2004 memorializing this modification to the Agreement (Notice of Motion for Summary Judgment, Ex. D), the parties also agreed that the 100% recapture rate would now apply to job creation goals as of January 2005, as opposed to the 80% originally applicable to that goal.
Adirondack was required under the Agreement to file an "Employee Reporting Form" by February of each year of the grant's applicability. However, Adirondack did not do so in 2005, and has, in fact, never done so. As a result, ESDC sent a letter to Adirondack dated January 23, 2006 (default notice) (Notice of Motion for Summary Judgment, Ex. E), in which it declared Adirondack to be in default for failure to meet the employment goals, and demanded immediate repayment of the sum of $300,000, 100% of the grant.
This action is brought to recapture the entire amount of the grant, based on Adirondack's default in 2005, and the termination of the Agreement which allegedly ensued. Adirondack proffers three affirmative defenses to ESDC's complaint: (1) failure to state a cause of action; (2) that, under the Agreement, the employment goals were not meant to be reached until completion of the project, which has not yet occurred; and (3) that employees of Lyndaker Excavating who performed work for Adirondack should be considered as employees of Adirondack for purposes of the Agreement's employment goals.
ESDC commenced this motion on April 3, 2008. The parties agreed by stipulation to extend Adirondack's time to serve opposition papers on ESDC until June 4, 2008. During the intervening time, the parties allegedly negotiated a lump sum settlement offered by Adirondack. This offer was never reduced to a writing or executed. In fact, ESDC maintains that its efforts to contact Adirondack's counsel between the date of the proposed settlement and the return date of the motion were unavailing.
On the morning of June 4, 2008, after Adirondack failed to submit any opposition to the motion, and after the motion was submitted, Lyndaker personally, and allegedly with the knowledge of his attorneys, called ESDC's attorneys to inform them that the settlement was off.
Adirondack then made its motion for leave to oppose ESDC's motion for summary judgment, having failed to do so in a timely manner under the parties' stipulation. In that motion, Adirondack ignores all of ESDC's objections to Adirondack's three affirmative defenses, and proposes a fourth, and new, affirmative defense that the default notice, by its language, did not amount to a notice of termination, despite the fact that ESDC had the absolute right to terminate Adirondack upon the proffer of the default notice.
Adirondack's attorneys offer as an excuse for their client's failure to oppose the motion their belief that the settlement was a sure thing, and that they were awaiting communication from their own client to conclude the matter. Allegedly, without their foreknowledge, Lyndaker (their own client's principal) contacted ESDC's attorney on June 4, 2008, after submission of the motion, to tell ESDC that the settlement was off the table. Adirondack's attorneys do not actually explain why they let the June 4, 2008 date pass without contacting ESDC's attorneys. Instead, they base their motion mostly on the alleged merits of Adirondack's new affirmative defense.
II. Discussion
A. Summary Judgment
"The proponent of a motion for summary judgment must demonstrate that there are no material issues of fact in dispute, and that it is entitled to judgment as a matter of law." Dallas-Stephenson v Waisman, 39 AD3d 303, 306 (1st Dept 2007), citing Winegrad v New York University Medical Canter, 64 NY2d 851, 853 (1985). Upon proffer of evidence establishing a prima facie case by the movant, "the party opposing a motion for summary judgment bears the burden of 'produc[ing] evidentiary proof in admissible form sufficient to require a trial of material questions of fact.'" People v Grasso, 50 AD3d 535, 545 (1st Dept 2008), quoting Zuckerman v City of New York, 49 NY2d 557, 562 (1980).
ESDC has made a prima facie showing of its entitlement to summary judgment, disputing each of Adirondack's original affirmative defenses. As an initial matter, the first affirmative defense, failure to state a cause of action, is "mere surplusage," which may remain in the answer if any other valid cause of action is alleged. See Bernstein v Freudman, 136 AD2d 490, 492 (1st Dept 1988).
Adirondack's second affirmative defense alleges that, under the Agreement, it was not responsible to reach the employment goals therein until the project is completed (which has yet to occur). However, the Agreement contains no such requirement, and no such requirement shall be read into the Agreement. In fact, as ESDC points out, the Agreement provides that completion of the project is Adirondack's responsibility (Agreement, ¶ 1 [a]), and that Adirondack was responsible for the complete financing of the project beyond the ESDC grant. Id., ¶ 7 (k). Adirondack cannot hide behind any failure on its part to comply with the Agreement in the matter of the completion of the project.
Finally, ESDC has made a prima facie showing that Adirondack's third affirmative defense is without merit. The Agreement, by its terms, requires that Adirondack, not Lyndaker Excavating, create the new jobs. The statistics provided by ESDC show conclusively that (1) Adirondack, the sole grantee under the Agreement, created no new jobs; and (2) that Lyndaker Excavating's attempt, as a long-established business, to designate its own, existing, employees as "new" Adirondack employees, is unavailing. The Agreement clearly refers to Adirondack as the sole entity responsible for the creation and retention of "new" jobs. Further, the presentation by ESDC of Lyndaker Excavating's payroll indicates that Lyndaker Excavating actually lost employees during the time in question. The evidence substantiates ESDC's position that neither Adirondack nor Lyndaker Excavating (if Lyndaker Excavating employees could be considered at all), failed to meet the job creation and retention goals set forth in the Agreement.
Adirondack apparently created an entity called RS Productions, LLC (RS) to operate the speedway, whose employees, according to Adirondack, were "dedicated" to Adirondack. Adirondack would have this court consider RS's employees as employees of Adirondack for purposes of the Agreement's job creation goals. However, even if the employees of RS, which was not a signatory of the Agreement, could be considered as employees of Adirondack, RS, as per its payroll records (Notice of Motion, Ex. Q), did not employ nearly enough employees to fulfill the requirements of the Agreement.
As Adirondack has not attempted an offer of any admissible evidence which might create a question of fact as to any of ESDC's arguments for the striking of the three affirmative defenses, and which might forestall the grant of summary judgment based on these defenses, the granting of summary judgment to ESDC depends solely on whether Adirondack should be permitted to supply its untimely opposition to ESDC's motion, and if so, whether it has a valid defense under the new, and unpled, affirmative defense that ESDC never properly terminated the Agreement.
B. Motion to Serve Opposition to Summary Judgment
There is no question that Adirondack failed to oppose ESDC's motion in a timely manner, and proffers no excuse whatsoever for its failure to do so. Some courts have held that, in like situation, late papers will not be permitted absent a valid explanation for their untimeliness. See e.g. Bush v Hayward, 156 AD2d 899 (3d Dept 1989); Matter of Gustina, 135 AD2d 1124 (4th Dept 1987). However, the Appellate Division, First Department, has raised a higher standard for the refusal to accept late papers in opposition to a motion, when the delay is short, and 'did not rise to the level of willful, contumacious behavior nor was the delay due to bad faith." Stone v Speiser, 267 AD2d 157, 157 (1st Dept 1999). As no such contumacious behavior or bad faith has been alleged, the late opposition papers will be accepted.
In its papers, Adirondack bases its opposition to summary judgment on a single, as yet unpled defense: that the letter from ESDC declaring it in default did not suffice to terminate the Agreement, so that Adirondack cannot be held liable for the return of the grant.
ESDC objects to the inclusion of an unpled defense as opposition to its motion. However, "a court may even grant summary judgment based upon an unpleaded defense where reliance upon that defense neither surprises nor prejudices the plaintiff [emphasis in original] [internal quotation marks and citations omitted]." Igbarra Realty Corp. v New York Property Insurance Underwriting Association, 104 AD2d 258, 262 (1st Dept 1984); see also Millbrook Hunt, Inc. v Smith, 249 AD2d 283 (2d Dept 1998). Integral to this rule is the condition that the plaintiff have an opportunity to respond to the arguments raised by the defense. Igbarra Realty Corp. v New York Property Insurance Underwriting Association, 104 AD2d 258, supra.
Assuming that Adirondack's unpled defense has not surprised and prejudiced ESDC to the extent that it cannot respond to the argument raised therein, the defense presented does not create a question of fact sufficient to refute ESDC's offer of a prima facie case that the Agreement was properly terminated, and that the grant should be recovered.
Adirondack asserts, essentially, that the default letter was just that: a notice of default, and no more. According to this reasoning, some other action would have had to be taken by Adirondack to terminate the agreement, an act that has yet to be performed.
The Agreement contains five events of default, in paragraph 8 (a), among which is the failure to "meet the minimum employment goals required by Exhibit C." Agreement, ¶ 8 (a) (iv). Significantly, two default events, those contained in paragraphs 8 (a) (i) and 8 (a) (ii) (which are not relevant to the present case), allow for a 10-day cure period after a notice of default is received. Agreement, ¶ 8 (b). No such cure period exists for a default under paragraph 8 (a) (iii).
The Agreement also allows for a longer cure period should 10 days be insufficient. Agreement, ¶ 8 (b).
The Agreement contains no requirement that a termination of the Agreement as a result of an automatic default should be conveyed to Adirondack in any particular form. It does not, for example, require a separate written notice of termination following a notice of an incurable default.
Perusal of the notice of default confirms that it was a notice of termination. In the notice, ESDC demanded the return of the entire amount of the grant. There could hardly be a clearer indication of a termination of the Agreement than that, and any effort on Adirondack's part to say otherwise is disingenuous. Therefore, Adirondack has failed to raise an issue of fact as to the termination of the Agreement due to an incurable default by Adirondack in failing to meet the Agreement's job creation and retention goals. ESDC is entitled to summary judgment permitting recovery of the amount of the grant.
Despite Adirondack's protestations to the contrary, ESDC is also entitled to interest from the date of Adirondack's default. It is irrelevant that the Agreement does not specifically provide for interest. CPLR 5001 (a) provides that interest shall be awarded on a breach of contract action from the date of the breach. See Brushton-Moira Central School District v Fred H. Thomas Associates, P.C., 91 NY2d 256 (1998); Eisen v Feder, 47 AD3d 595 (1st Dept 2008). The default occurred on January 1, 2005. Therefore, ESDC is entitled to statutory interest from that date until the entry of judgment. CPLR 5004.
Accordingly, it is
ORDERED that the motion brought by plaintiff New York State Urban Development Corporation d/b/a Empire State Development Corporation for summary judgment (mot. seq. no. 002) is granted, and the Clerk of the Court is directed to enter judgment in favor of plaintiff and against defendant Adirondack International Speedway, LLC in the amount of $300,000, together with interest as prayed for at the rate of 9% per annum from January 1, 2005 until the date of the entry of judgment, as calculated by the Clerk, and thereafter at the statutory rate, with costs and disbursements to be taxed by the Clerk upon submission of an appropriate bill of costs; and it is further
ORDERED that the motion brought by defendant Adirondack International Speedway, LLC to serve late papers in opposition to the motion for summary judgment (mot. seq. no. 003) is granted.