Opinion
No. QTS 300374/10.
2012-07-2
SMART PAY CHECK CASHING CORP., Plaintiff, v. ACTION CHECK CASHING CORP., Defendant.
Michal Gasparski, Esq., Great Neck, Attorney for Plaintiff, Smart Pay Check Cashing Corporation. Robert M. Milner, Esq., Robinson Brog Leinwand, Greene Genovese & Gluck, P.C., New York, Attorney for Defendant, Action Check Cashing Corporation.
Michal Gasparski, Esq., Great Neck, Attorney for Plaintiff, Smart Pay Check Cashing Corporation. Robert M. Milner, Esq., Robinson Brog Leinwand, Greene Genovese & Gluck, P.C., New York, Attorney for Defendant, Action Check Cashing Corporation.
JAMES E. D'AUGUSTE, J.
Defendant Action Check Cashing Corporation (“Action”) moves for summary judgment dismissing the complaint's sole cause of action for breach of contract. Plaintiff Smart Pay Check Cashing Corporation (“Smart”) cross-moves for summary judgment on the issue of liability. For the reasons set forth below, Action's motion is granted and Smart's cross-motion is denied.
On March 24, 2009, prior to this action being transferred to civil court, all claims were dismissed except for the cause of action for breach of contract against Action. Smart's claim is premised upon two theories of liability: (1) breach of an obligation to pay a contractual purchase price and (2) breach of an implied covenant of good faith and fair dealing.
Factual Background
Non-party Bisa Check Cashing Corporation (“Bisa”) operated a check cashing business pursuant to New York State Department of Banking (“Banking Department”) licenses. In 2004, Bisa's business effectively ceased after it defaulted on its financial obligations. In 2005, Bisa's assets were transferred to Smart for no known consideration. The principals of the two companies are related by marriage. Smart unsuccessfully attempted to secure the Banking Department's approval to obtain Bisa's licenses, but ended its efforts after that agency repeatedly sought various types of clarifying information. Faced with an imminent hearing to revoke its check cashing licenses, Bisa agreed to surrender them on December 5, 2005. The Banking Department also imposed a $49,000 fine, which Action later paid on Bisa's behalf.
In October 2011, the Banking Department was merged into a newly-formed New York State Department of Financial Services. NY Fin. Serv. L. § 102; L.2011, ch. 62, pt. A, § 1.
On December 17, 2005, Smart and Action entered into an asset purchase agreement (“APA”) relating to four check cashing locations. The APA provides, in relevant part, two conditions precedent to closing: (1) assignment of the four leases for the locations Bisa operated check cashing businesses (APA ¶ 17.1[a] ) and (2) Action's receipt of Banking Department check cashing licenses covering the four geographic areas serviced by the properties (APA ¶ 17.1[b] ). Action was not obligated to close the transaction unless all conditions precedent were fulfilled. See APA ¶ 17.2.
The transaction's purchase price is set forth in the APA which provides for a totaling of the actual aggregate gross revenues generated from the locations over a specified three month period after the receipt of the licenses to conduct business and then multiplied by four. APA ¶ 2.1[b]. Once the purchase price was determined, Bisa's bank lenders would be entitled to a total of $750,000. APA ¶ 2.2[b]. In addition, several landlords that were owed back-rent would receive at least $75,000. APA ¶ 2.2[c]. Moreover, Action agreed to advance 50% of the accruing rent for the various Bisa properties between the period of executing the agreement and the closing of the transaction, with Smart paying the remaining 50% during this time period. APA ¶ 2.2[d].
The Banking Department did not grant Action exclusivity to seek licenses for the geographic areas covered by Bisa's surrendered licenses. Instead, it allowed any interested party to apply for licenses covering these regions. Action hired counsel to assist with the Banking Department's competitive application process. Shortly after executing the APA, Action submitted its applications for the licenses, which were met with several requests for clarifying information. Action proposed an alternative location for one of the check cashing businesses because Smart was evicted from an original property. Action paid the entirety of the accruing rents for the proposed locations. It was eventually awarded licenses for two geographic areas. Different applicants secured licenses covering the other two regions. Action offered to close the transaction using the two licenses it received, but Smart declined the offer. These two locations where unprofitable and eventually went out-of-business.
Legal Analysis
a. Breach of Contract: Failure to Close the APA Transaction
Smart asserts a claim for breach of contract premised upon a putative failure to pay the transaction's purchase price. Action denies it violated the APA's terms.
It is black letter law in New York that a failure to fulfill a condition precedent to closing relieves a contracting party from having to complete the transaction. Peran v. Desai, 101 A.D.2d 857, 858 (2d Dep't 1984), aff'd, 63 N.Y.2d 898 (1984) (for reasons set forth in appellate division decision). An express condition precedent “must be literally performed.” Oppenheimer & Co., Inc. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685, 690 (1995). “When interpreting contracts, we have repeatedly applied the familiar and eminently sensible proposition of law [ ] that, when parties set down their agreement in a clear, complete document, their writing should ... be enforced according to its terms.” Vermont Teddy Bear Co., Inc. v. 538 Madison Realty Co., 1 NY3d 470, 475 (2004) (internal quotations and citations omitted).
Here, two condition precedent to closing the APA were not fulfilled: (1) obtaining the four Banking Department check cashing licenses (APA ¶ 17.1[b] ) and (2) Smart transferring four property leases (APA ¶ 17.1[a] ). The APA expressly states that the failure to satisfy any condition precedent is a ground to terminate the contract:
Notwithstanding anything to the contrary contained herein, Purchaser may terminate this agreement upon the earlier to occur of (i) a failure to satisfy all the conditions precedent enumerated in Section 17.1(a), (b) or (c) hereof ... (iv) Purchaser's receipt of reliable information from the New York State Banking Department, or other applicable authority, indicating that the subject licenses will not be approved and/or issued at all.... In such event, the agreement shall be of no further force of effect, and the parties shall owe no further obligations to the other hereunder except those which survive closing as expressly provided herein.
APA ¶ 17.2.
The APA required the Banking Department to issue to Action all four check cashing licenses as a condition precedent to closing. APA ¶ 17.1[b]. It is indisputable that Banking Department awarded Action only two licenses. The other two licenses were issued to different applicants. The failure to receive the four licenses relieved Action from being required to close the transaction. APA ¶ 17.2.
Likewise, the assignment of all four of the property leases was also a condition precedent to closing. The parties' agreement states on this point:
This agreement and the transactions contemplated herein are subject to and conditioned upon Seller's assignment to Purchaser of the unexpired terms of Leases, upon the same terms as Seller, for the premises set forth herein.... Seller shall prior to Closing, and as a condition of Purchaser's obligations hereunder, obtain the landlords' written consent of the assignment of such leases to Purchaser.
APA ¶ 17.1[a]. It is undisputed that Smart failed to comply with the lease assignment condition precedent because it was evicted from 3804 Boston Post Road, Bronx, New York (“Boston Post Road Premises”). The parties' agreement expressly permits Action to terminate the transaction if the above condition precedent went unfulfilled. APA ¶ 17.2.
Action unsuccessfully attempted to salvage its application for this geographic area by proposing a nearby location for the check cashing business to the Banking Department. The APA expressly provides that any modification of the agreement is required to be in a supplemental “instrument in writing duly executed by both parties .” APA ¶ 16. It is undisputed that the parties never executed a supplemental agreement modifying the APA's terms. As such, this failed remedial effort to save the business endeavor did not excuse Smart's non-performance of its contractual obligation to deliver a valid lease for the Boston Post Road Premises. Gargano v. Rubin, 200 A.D.2d 554, 555 (2d Dep't 1994) (“It is axiomatic that a seller cannot place a purchaser in default without first tendering his or her own performance”) (citations omitted).
Significantly, Smart asserts a failure to pay the transaction's purchase price, but is unable validly to quantify an amount of money that was wrongfully withheld. The purchase price set forth in the APA is not a sum certain, but, subject to certain adjustments, based upon a formula using actual revenues from the four proposed check cashing locations during certain time periods measured from receipt of the four licenses:
the sum equal to the actual aggregate gross revenues generated by the Purchaser's check cashing business in those Locations in which Purchaser is operating (collectively, the “Business) during the fourteenth (14th) through sixteenth (16th) full calendar months occurring after the date the Purchaser has obtained the “Licenses” (as hereafter defined) for the Locations, multiplied by four (4) (in order to arrive at an estimated annual gross revenue (the “Gross Revenue”) for the Business).
APA ¶ 2.1[b] (emphasis added). Actual aggregate gross revenues generated by “the Purchaser” at the four check cashing business locations will never be available because Action only received two licenses. Faced with this conundrum, Smart seeks to quantify damages by speculating on estimated revenues for two locations in direct contravention of the express terms of the APA. The proposed methodology is at odds with the express terms of the APA for calculating the transaction's purchase price. See, e.g., Vermont Teddy, 1 NY3d at 475 (“courts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing”). Smart's attempt to modify the APA's express terms to quantify its putative damages is rejected.
Accordingly, Smart's cause of action asserting breach of contract premised upon a violation of the APA's terms is dismissed.
b. Breach of Contract: Implied Covenant of Good Faith and Fair Dealing
Smart asserts that Action violated the APA's implied covenant of good faith and fair dealing by putatively mishandling its Banking Department applications for the check cashing licenses. Action rejoins that the implied covenant cannot prevent it from exercising an express contractual right to terminate the agreement upon the failure of a condition precedent. Action further asserts that the most the implied covenant could require of it is a good faith attempt to secure the licenses. In this regard, Action contends that it vigorously sought the four licenses in an indisputably competitive government licensing process.
An implied contractual obligation relating to the fulfillment of a condition precedent is sometimes referred to as the prevention or hindrance doctrines. Thor Properties, LLC v. Chetrit Group LLC, 91 AD3d 476, 477–78 (1st Dep't 2012), citing, HGCD Retail Services, LLC v. 44–45 Broadway Realty Co., 37 AD3d 43, 53 (1st Dep't 2006).
The implied covenant prevents a party from deliberately acting to prevent performance of a contract or with the bad faith purpose of depriving the plaintiff of contract benefits. E.g., Richbell Info. Servs., Inc. v. Jupiter Partners, L.P., 309 A.D.2d 288 (1st Dep't 2003); Aventine Inv. Mgt. v. Canadian Imperial Bank of Commerce, 265 A.D.2d 513, 514 (2d Dep't 1999) (citations omitted). In contingency agreements containing conditions precedent, however, the implied covenant cannot alter an express right to terminate the contract if a condition precedent to closing is not met. See Moran v. Erk, 11 NY3d 452, 457–58 (2008) (permitting the voiding of a contract even if a condition precedent to closing was not met due to the bad faith of the buyer); see also Paxi, LLC v. Shiseido Americas Corp., 636 F.Supp.2d 275, 285–86 (S.D.NY 2009); Stokes v. Lusker, 2009 WL 612336 *7–*8 (S.D.NY March 04, 2009). Indeed, an implied covenant “is only applicable when it is consistent with the intent of the parties to the agreement.” Thor, 91 AD3d at 477 (holding inapplicable an implied covenant when the consequence of a failed contingency is addressed in parties' agreement).
The APA is a classic contingency contract. Action was contractually empowered to terminate the agreement if certain conditions precedent were not met. APA ¶ 17.2[i]. As noted above, these enumerated conditions precedent included the assignment of specific property leases and securing certain check cashing licenses. Consistent with Moran, the implied covenant of good faith and fair dealing cannot prevent Action from exercising its express contractual right to terminate the APA when the above conditions precedent to closing were not satisfied. Likewise, consistent with Thor, a plain reading of the contract makes clear that the parties took account of the possibility that the Banking Department would not issue the licenses or that leases would not be capable of being assigned. Smart's disappointment that Action had the right to terminate the contingent contract due to the failure of conditions precedent, while understandable, has no legal bearing on either parties' contractual obligations. Oppenheimer, 86 N.Y.2d at 695 (“if they are dissatisfied with the consequences of their agreement, the time to say so [was] at the bargaining table”) (citations and internal quotations omitted); Reiss v. Financial Performance Corp., 97 N.Y.2d 195, 199 (2001) (“this Court will not imply a term where the circumstances surrounding the formation of the contract indicate that the parties, when the contract was made, must have foreseen the contingency at issue and the agreement can be enforced according to its terms”) (citations omitted).
Additionally, Action's efforts in seeking to obtain the four licenses was objectively reasonable. Action hired experienced counsel to submit its applications. While the Banking Department requested clarification of information, “virtually every application made for a check cashing license is followed by multiple requests by the Banking Department for corrections or supplementation.” iAffidavit of Edward P. D'Alessio, Esq., sworn March 30, 2012, at ¶ 8. Indeed, clarifications and supplements were requested from Smart when it unsuccessfully sought licenses covering the same geographic areas. Action also took on the entirety of the financial risk by advancing Smart's share of the pre-closing rents and paying Bisa's fine. In the end, Action secured two licenses with the other two licenses being granted to well-known check cashing competitors. The implied covenant cannot be used to require success in a competitive public application process, which is essentially what Smart is seeking in this lawsuit.
Moreover, “the principal reason for most of the delays in providing a finalized application ... [was] that one of the prior locations, in the Bronx, had been relocated without Banking Department approval.” D'Alessio Affidavit at ¶ 5. Notably, the Banking Department states in its correspondence that “[s]ome of the major issues but not necessary all are listed below: ... No lease or commitment letter was provided for 3804 Boston Post Road, Bronx, New York. An application cannot be processed until a valid lease or commitment letter from the landlord for the proposed location is provided.” Affidavit of Nick Gialourakis, sworn February 20, 2012, Ex. 5 (February 3, 2006 Banking Department letter) (emphasis added). Action could not provide the Banking Department with a valid lease for this location because Smart was evicted from the Boston Post Road Premises. While Action attempted to use a different location for the proposed check cashing business, this location lacked a valid certificate of occupancy and possessed active building code violations. Id. at Ex. 5 (August 31, 2006 Banking Department letter). Thus, contrary to Smart's contention that the license was not obtained “solely due to [Action's] inattention to the check cashing applications,” Smart's failure to meet its contractual obligation significantly impaired Action's ability to secure a valuable license.
Accordingly, Smart's cause of action asserting breach of contract premised upon a violation of the the implied covenant of good faith and fair dealing is dismissed.
Conclusion
Action's motion for summary judgment is granted and Smart's cross-motion for summary judgment is denied. The Clerk is accordingly directed to enter judgment dismissing the complaint.
This constitutes the Decision and Order of this Court.