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Breach of Contract Allegations Did Not Give Rise to Tort Causes of Action—No Duty Independent of the Contract Itself

The First Department determined that the negligence causes of action were subsumed in the breach of contract allegations and could not be separately pled:

Breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated … . Allegations of negligence based on defects in construction of a condominium sound in breach of contract rather than tort … . A claim for negligent misrepresentation is not separate from a breach of contract claim where the plaintiff fails to allege a breach of any duty independent from contractual obligations … . Here, plaintiff failed to allege any legal duty that would give rise to an independent tort cause of action. Neither General Business Law art 23-A nor its regulations create a special duty or support a private right of action. Thus, the negligence and negligent misrepresentation claims were duplicative of the breach of contract claim and did not state a cause of action. Board of Mgrs of Soho N 267 W 124th St Condominium v NW 124 LLC, 2014 NY Slip Op 02513, 1st Dept 4-10-14

 

Lost Profits Not Recoverable—Too Speculative and Not Contemplated in the Agreement

The First Department determined the agreement between the parties did not contemplate lost profits and, therefore, lost profits could not be awarded as damages for the breach:

Nevertheless, the court properly concluded that [plaintiff] was not entitled to recover lost profits. To the extent [plaintiff] seeks lost profits for a five-year period, such damages are speculative, as its assumption that it would have remained in contract with [defendant] for five years could not be established with reasonable certainty. To the extent it seeks lost profits in the amount of $1 million for 2010 (i.e., $500,000 for two seasons), such lost profits were not within the contemplation of the parties as a probable result of a breach at the time they entered into the agreement and could not be established with reasonable certainty … . The evidence surrounding the negotiation and execution of the contract does not show that the parties expected [defendant] to bear the responsibility for any lost profits sustained by [plaintiff]. Indeed, all the witnesses acknowledged that sales revenue of $500,000 per season was mere expectation, and [defendant’s] principal testified that he would not guarantee minimum sales in his sales agreements, especially with emerging designers, as there were “too many variables involved in procuring success in sales in our very competitive and fickle industry.” Such evidence undermines the conclusion that the parties contemplated that [defendant] would assume liability for [plaintiff’s] loss of anticipated revenue … . Olsenhaus Pure Vegan LLC v Electric Wonderland Inc, 2014 NY Slip Op 02343, 1st Dept 4-3-14

 

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Breach of Fiduciary Duty Cause of Action Stated Against Actuary

After sorting out professional malpractice claims (negligence—three-year S/L) from breach of contract claims (intentional—six year S/L), the Third Department explained the elements of a “breach of fiduciary duty” cause of action in the context of actuarial services (provided by SGRisk):

Actuaries are not considered professionals for the purpose of the shortened statute of limitations applicable to malpractice claims … . Despite not being deemed professionals in that context, actuaries can still develop relationships of trust and confidence sufficient to give rise to a fiduciary duty. Courts must conduct a fact specific inquiry to determine whether a fiduciary relationship exists based on confidence on one side and “resulting superiority and influence on the other” … . Plaintiff alleged that SGRisk “held itself out as being a skilled and competent actuarial” firm that “adhered to accepted professional standards,” that it rendered services for the trusts’ benefit, provided advice and created “a relationship of trust and confidence between” itself and the trusts. Plaintiff also alleged that SGRisk agreed to exercise “good faith and undivided loyalty” when determining appropriate valuation of the trusts’ future claims liability and the trusts reasonably relied on this, placing confidence in SGRisk that it would accurately produce truthful annual actuarial reports with correct estimates of future claims reserves. Additionally, plaintiff alleged that SGRisk breached the duty by knowingly and consistently underestimating the claims liabilities and necessary reserves and failing to identify dangerous underfunding … .  New York State Workers’ Compensation Board… v SGRisk LLC, 517387, 3rd Dept 4-3-14

 

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A Gallery, as Agent for an Artist, Was Obligated to Disclose All Material Facts Within the Scope of the Agency/The Failure to Disclose the Gallery’s Intention to Treat Prints Made from the Artist’s Originals as Belonging to the Gallery Precluded Any Claim of Ownership by the Gallery

In a full-fledged opinion by Justice Friedman, the First Department determined the terms of the contract between a gallery and an artist (Scher) designated the gallery as the artist’s agent with respect to prints created from the artist’s original works. Therefore, the artist was the owner of the prints.  In addition, the court determined, under the General Obligations Law, the terms of a written contract were not changed by an alleged oral agreement:

…[S]ection 1 of the 2005 agreement (“Scope of Agency”) expressly provides that Scher was appointing the Gallery “to act as [her] exclusive agent . . . for the exhibition and sales of . . . limited edition prints published exclusively by [the] [G]allery,” among other kinds of artwork, for the duration of the agreement. Thus, when the Gallery commissioned the printer to produce the prints, paid the printer for the prints, and took delivery of the prints, it did so as Scher’s agent and, hence, fiduciary … . Accordingly, the prints must be deemed to be Scher’s property… . …

As Scher’s fiduciary, the Gallery was obligated to disclose to her in plain terms all material facts within the scope of the agency, obviously including any understanding the Gallery had, upon entering with Scher into the oral print deal, that it would own the prints and any intention it entertained to treat the prints as its own property … . If the Gallery did not wish to finance the production of prints that it would not own, it could have sought to reach an agreement with Scher specifying that prints made at the Gallery’s expense would be the Gallery’s property. Alternatively, if the Gallery merely wished to protect itself from being abruptly terminated as Scher’s agent before it had a fair chance to sell the prints, it could have sought to reach an agreement with her on a minimum time-period it would have to sell each batch of prints during which the agency could not be terminated without cause. Instead, the Gallery left itself exposed by going forward with the print deal based on only a vague, unwritten agreement that left nearly all of the terms up in the air except for the basic 90/10 split of sales revenue (and even as to that, there is a dispute as to whether Scher’s cut is calculated based on gross or net sales). We see no reason to relieve a fiduciary, such as this professional art merchant, of the consequences of its own carelessness in dealing with its principal.  Scher v Stendhal Gallery Inc, 2014 NY Slip Op 02154, 1st Dept 3-27-14

 

Plaintiff’s Lost Profits Deemed “General Damages,” Not “Consequential Damages,” Re: a Distribution Contract in which Plaintiff Agreed to Resell Defendant’s Product

In a full-fledged opinion by Judge Rivera, over a dissent, the Court of Appeals determined that, under the facts, lost profits were “general,” not “consequential” damages.  The distribution contract was for “CoStar stents” (manufactured by defendant) used in medical procedures. The contract called for plaintiff to resell defendant's stents. The resale price was the benchmark for the price of the transfer of the stents to plaintiff for resale. The distribution contract had precluded recovery for consequential damages. Plaintiff sought its lost profits as general damages:

The agreement was not a simple resale contract, whereone party buys a product at a set price to sell at whatever the market may bear. Rather, the price plaintiff paid defendant reflected the actual sales, and sales price, of CoStar stents. The agreement required plaintiff to pay defendant a transfer price calculated as a percentage of plaintiff's net sales of Costar: 61% for direct sales and 75% for indirect sales. Each quarter, the parties would calculate a minimum price based on net sales during the preceding quarter. Plaintiff remained obligated to pay defendant the full transfer price for its sales, even when the actual sales price exceeded the minimum price. Thus, the contract would only operate if plaintiff sold stents, and the payment defendant received bore a direct relationship to the market price plaintiff could obtain.  Indirect sales were sales made by affiliates. * * *

General damages “are the natural and probable consequence of the breach” of a contract … . They include “money that the breaching party agreed to pay under the contract.. . By contrast, consequential, or special, damages do not “directly flow from the breach” … . “The distinction between general and special contract damages is well defined, but its application to specific contracts and controversies is usually more elusive” … . Lost profits may be either general or consequential damages, depending on whether the non-breaching party bargained for such profits and they are “the direct and immediate fruits of the contract” … . Otherwise, where the damages reflect a “loss of profits on collateral business arrangements,” they are only recoverable when “(1) it is demonstrated with certainty that the damages have been caused by the breach, (2) the extent of the loss is capable of proof with reasonable certainty, and (3) it is established that the damages were fairly within the contemplation of the parties”… .  * * *

Here, the agreement used plaintiff's resale price as a benchmark for the transfer price. The contract clearly contemplated that plaintiff would resell defendant's stents. That was the very essence of the contract. Any lost profits resulting from a breach would be the “natural and probable consequence” of that breach …. .

Although the lost profits sought by plaintiff are not specifically identified in the agreement, it cannot be said that defendant did not agree to pay them under the contract, as these profits flow directly from the pricing formula. The purpose of the agreement was to resell. Indeed, defendant … sought to enter a market unavailable to it by capitalizing on plaintiff's distribution network. The fact is that both defendant and plaintiff depended on the product's resale for their respective payments. Biotronik AG v Conor Medsystems Ireland Ltd, 8, CtApp 3-27-14

 

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Under the Unambiguous Terms of the Collective Bargaining Agreement, Plaintiff, a Retiree Who Was No Longer a Union Member, Was Not Subject to the Grievance-Filing Requirement and Could Sue Directly

The Fourth Department determined a retired employee was not required to go through the grievance procedure outlined in the Collective Bargaining Agreement because the unambiguous language of the CBA did not apply to retirees no longer union members:

In relevant part, the CBA defines the term “grievance” broadly as “a controversy, dispute or difference arising out of the interpretation or application of this contract.” The first step of the grievance procedure requires either the union or a “member” to present the grievance in writing. “It is well established that[,] when reviewing a contract, ‘[p]articular words should be considered, not as if isolated from the context, but in the light of the obligation as a whole and the intention of the parties manifested thereby’ ” … . Furthermore, we“must give the words and phrases employed their plain meaning” … . Elsewhere in the CBA, the word “member” is used interchangeably with the word “employee,” and several CBA provisions that apply to “members,” such as provisions for holiday pay and annual physicals, clearly affect only active employees. In addition, the CBA provides that the Village recognizes the union “as the exclusive representative for collective negotiations with respect to salaries, wages, and other terms and conditions of employment of all full-time and part-time employees” (emphasis added).

Giving the word “member” its plain meaning, and interpreting the contract as a whole, we agree with plaintiff that the word “member” means a member of the union. It is undisputed that plaintiff ceased to be a member of the union after his retirement. Thus, according to the clear and unambiguous terms of the CBA, plaintiff, who was no longer a “member” of the union when he became aggrieved, could not file a grievance. Buff v Village of Manlius…, 37, 4th Dept 3-21-14

 

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Supreme Court Should Not Have Reformed Settlement Agreement/Criteria for “Mutual Mistake” Not Met

The Second Department determined Supreme Cout should not have found that mutual mistake required reformation of a settlement agreement.  The court explained the operative criteria:

“Marital settlement agreements are judicially favored and are not to be easily set aside” … . Although a mutual mistake by the parties may form the basis for reformation of a marital settlement agreement, “the mistake must be so material that . . . it goes to the foundation of the agreement'” … . “[T]o overcome the heavy presumption that a deliberately prepared and executed written instrument manifested the true intention of the parties, evidence of a very high order is required” … . The party seeking reformation must show clearly and beyond doubt that there has been a mutual mistake, and must show “with equal clarity and certainty the exact and precise form and import that the instrument ought to be made to assume, in order that it may express and effectuate what was really intended by the parties'” … . Hackett v Hackett, 2014 NY Slip Op 01715, 2nd Dept 3-19-14

 

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Failure to Mention the Rate of Compensation Required Dismissal of the Contract Cause of Action Under the Statute of Frauds/However the Allegation Defendant Employed Plaintiff Was Sufficient to Allow the Quantum Meruit Cause of Action to Go Forward

The First Department determined the contract cause of action must be dismissed under General Obligations Law 5-701(a)(10) because there was no mention of the rate of compensation,  but that there were sufficient allegations to allow the quantum meruit cause of action to go forward:

In Davis & Mamber, this Court held that for a writing evidencing a contract “[t]o satisfy the Statute of Frauds . . . a memorandum must contain expressly or by reasonable implication all the material terms of the agreement, including the rate of compensation if there has been agreement on that matter” … . … Davis & Mamber precluded a contract claim for failure to satisfy the applicable provision of the statute of frauds, because the relied-on writings lacked any reference to the agreed-on compensation; however, it permitted a quantum meruit claim, because the rule for a writing establishing quantum meruit claims is less exacting, requiring only that the writing “evidenced the fact of plaintiff’s employment [by defendant] to render the alleged services” …. Here, as in Davis & Mamber, the emails … fail to make any reference to payment terms, and accordingly fail to satisfy the statute of frauds as to the contract claim … . However, they suffice to show that [defendant] employed plaintiff, and are therefore enough to satisfy the statute for purposes of plaintiff’s quantum meruit claim.  Chapman, Spira & Carson LLC v Helix BioPharma Corp, 2014 NY Slip Op 01685, 1st Dept 3-18-14

 

No Need to Allege “the Benefit Was Conferred at the Behest of the Defendant”

In a full-fledged opinion by Justice Acosta, the First Department determined  a 2012 Court of Appeals case (Georgia Malone & Co Inc v Reider, 19 NY3d 511) did not change the law of unjust enrichment and explained the nature of the relationship between the parties which must be alleged in the pleadings:

It is well established that to successfully plead unjust enrichment “[a] plaintiff must allege that (1) the other party was enriched, (2) at that party’s expense, and (3) that it is against equity and good conscience to permit the other party to retain what is sought to be recovered'” … . A claim for unjust enrichment “is undoubtedly equitable and depends upon broad considerations of equity and justice” … . A plaintiff is not required to allege privity. It must, however, “assert a connection between the parties that [is] not too attenuated” … . Thus, although a plaintiff could satisfy this requirement by alleging that the benefit was conferred at the behest of the defendant …, the Court of Appeals has never required such a relationship. Rather, the pleadings merely have to “indicate a relationship between the parties that could have caused reliance or inducement” … . Philips Intl Invs LLC v Pektor, 2014 Slip Op 01700, 1st Dept 3-18-14

 

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Landlord Cannot Recover Lost Rent In Action Based Upon Breach of Covenant to Keep the Premises in Good Repair

Over the dissents of two justices, the First Department determined that lost rent was not recoverable for breach of a lease provision requiring a tenant to keep the premises in good repair:

It is well settled that lost rent is not recoverable as damages for breach of a lease covenant requiring a tenant to keep the premises in good repair. An action alleging breach of such a covenant can be brought either before or after the expiration of the lease term … . In Appleton v Marx (191 NY 81 [1908]), the Court of Appeals identified two different measures of damages, depending on when the action is commenced. If the action is brought before the lease expires, a landlord can recover “the injury done to the reversion” (id. at 83), i.e. “the difference between the value of the premises with the improvement and absent the improvement” … . On the other hand, if the action is brought after the expiration of the lease term, “the measure of the damages is the cost of putting the premises into repair” … . In neither circumstance, however, did the Court of Appeals provide that lost rent is included in the measure of damages.  Building Serv Local 32B-J Pension Fund v 101 Ltd Partnership, 2014 NY Slip Op 01544, 1st Dept 3-11-14

 

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