Court Opinion

ID: 4083075
Source: CourtListenerOpinion
Date Created: 2016-10-07 23:44:12.993424+00
Date Added: 2024-06-11T09:18:06.343502
License: Public Domain

SUPREME COURT OF THE STATE OF NEW YORK
           Appellate Division, Fourth Judicial Department

395
CA 13-00949
PRESENT: SCUDDER, P.J., SMITH, CARNI, LINDLEY, AND WHALEN, JJ.

VAL TECH HOLDINGS, INC., PLAINTIFF-APPELLANT,

                    V                             MEMORANDUM AND ORDER

WILSON MANIFOLDS, INC., DEFENDANT-RESPONDENT.

HARRIS BEACH PLLC, PITTSFORD (PHILIP G. SPELLANE OF COUNSEL), FOR
PLAINTIFF-APPELLANT.

LECLAIR KORONA GIORDANO COLE LLP, ROCHESTER (JEREMY M. SHER OF
COUNSEL), FOR DEFENDANT-RESPONDENT.

     Appeal from an order of the Supreme Court, Monroe County (Matthew
A. Rosenbaum, J.), entered March 13, 2013. The order, among other
things, denied the motion of plaintiff for summary judgment dismissing
defendant’s counterclaims and granted the cross motion of defendant
for leave to serve a second amended answer and counterclaims.

     It is hereby ORDERED that the order so appealed from is
unanimously modified on the law by granting that part of plaintiff’s
motion to strike defendant’s demand for punitive damages and denying
that part of defendant’s cross motion for leave to serve a second
amended answer to add a counterclaim for breach of the implied
covenant of good faith and fair dealing, and as modified the order is
affirmed without costs.

     Memorandum: Plaintiff commenced this action seeking damages for,
inter alia, breach of a written contract. Pursuant to the contract,
in return for the payment of $275,000, plaintiff was to fabricate
plastic injection molds for the production of specialty intake
manifold parts for high performance automobile engines and resale by
defendant to retail consumers. In its amended answer, defendant
asserted counterclaims for, inter alia, breach of contract, seeking
consequential damages in the form of lost profits. Plaintiff moved
for summary judgment dismissing defendant’s counterclaims, which
sought $16 million in consequential damages, plus punitive damages,
and defendant cross-moved for leave to serve a second amended answer
with, inter alia, counterclaims for breach of the implied covenant of
good faith and fair dealing and fraud. Supreme Court denied
plaintiff’s motion and granted defendant’s cross motion. We note at
the outset that we agree with plaintiff that this agreement for the
sale of “specialty manufactured goods” is governed by New York’s
version of the Uniform Commercial Code (see UCC 2-105 [1]).
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                                                         CA 13-00949

     As relevant on appeal, we conclude that Supreme Court properly
denied plaintiff’s motion to the extent that it sought summary
judgment dismissing the counterclaim for breach of contract, which
seeks consequential damages. Under the circumstances presented here,
lost profits are a form of consequential damages recoverable if “the
seller at the time of contracting had reason to know of them and which
could not reasonably be prevented by cover or otherwise” (UCC 2-715
[2] [a]). “The rule that damages must be within the contemplation of
the parties is a rule of foreseeability. The party breaching the
contract is liable for those risks foreseen or which should have been
foreseen at the time the contract was made. The breaching party need
not have foreseen the breach itself, however, or the particular way
the loss came about. It is only necessary that loss from a breach is
foreseeable and probable” (Ashland Mgt. v Janien, 82 NY2d 395, 403).

      Although the written contract is silent with respect to damages,
we apply a “commonsense rule” to determine “what the parties would
have concluded had they considered the subject” (Kenford Co. v County
of Erie, 67 NY2d 257, 262). Knowledge of resale is one of the factors
of which the “seller at the time of contracting had reason to know”
within the meaning of UCC 2-715 (2) (a). Applying these rules, we
conclude that plaintiff failed to meet its initial burden of
establishing as a matter of law that lost profits were not within the
contemplation of the parties at the time the contract was made (see
Kenford Co., 67 NY2d at 262). Here, there is no dispute that
plaintiff knew at the time the contract was made that defendant needed
the molds for production and immediate resale of the specialty parts
(see Fruition, Inc. v Rhoda Lee, Inc., 1 AD3d 124, 125). Although
plaintiff contends that defendant failed to state that an agreement
for lost profits was in fact reached or identify when the purported
agreement was consummated, the test that the parties must have reached
some sort of “tacit agreement” with respect to the recovery of lost
profits has been specifically rejected by the drafters of the Uniform
Commercial Code (see UCC 2-715, Official Comment 2; see also Biotronik
A.G. v Conor Medsystems Ireland, Ltd., 22 NY3d 799, ___). Moreover,
“[i]t is well established . . . that ‘[a] moving party must
affirmatively [demonstrate] the merits of its cause of action or
defense and does not meet its burden by noting gaps in its opponent’s
proof’ ” (Dodge v City of Hornell Indus. Dev. Agency, 286 AD2d 902,
903).

     In any event, we agree with defendant that it alleged facts in
opposition to the motion from which it could be determined that lost
profits were within the contemplation of the parties and thus
defendant raised a triable issue of fact sufficient to defeat that
part of the motion (see generally Zuckerman v City of New York, 49
NY2d 557, 562).

     We reject plaintiff’s further contention that defendant’s lost
profit claim must fail because defendant did not have executed
contracts in place for the sale of units at the time of the breach
(see Kenford Co., 67 NY2d at 261-262; see also Jewell-Rung Agency,
Inc. v Haddad Org., Ltd., 814 F Supp 337, 341-342). Moreover,
regardless whether the claim involves a new or an established
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                                                         CA 13-00949

business, the test remains the same, i.e., whether future profits can
be calculated with reasonable certainty (see Ashland Mgt., 82 NY2d at
404), and plaintiff does not challenge that element in this appeal.

     We reject plaintiff’s further contention that defendant’s claim
for consequential damages is barred by the statute of frauds because
it cannot be performed within one year (see General Obligations Law §
5-701 [a] [1]). The written agreement states on its face that it is
to be performed within “six weeks.” The expressions of the
contemplation of mutually beneficial future association between the
parties by defendant’s president in his deposition testimony obviously
referred to the “possibility of future business dealings and not to
the performance of the contract already made” (Gruber v S-M News Co.,
208 F2d 401, 403).

     We further conclude that defendant’s claim for the loss of
prospective profits caused by plaintiff’s alleged breach of the
written contract is not subject to the one-year statute of frauds, but
instead is subject to the well established “reasonable certainty” test
used in predicting the probable results of contemplated business
ventures (Kenford Co., 67 NY2d at 261). Plaintiff’s further
contention that defendant’s damages should be limited to the first
1,000 units produced is raised for the first time on appeal and
therefore is not properly before us (see Ciesinski v Town of Aurora,
202 AD2d 984, 985).

     We also reject plaintiff’s contention that defendant’s lost
profit claim fails because “cover” was available (see UCC 2-715 [2]
[a]). Where the buyer is prevented from covering because of its
financial condition, which in turn is attributable in part to the
seller’s breach, it is not reasonable to require him to cover (see
Nyquist v Randall, 819 F2d 1014, 1018-1019; Hall v Miller, 143 Vt 135,
145-146, 465 A2d 222, 228; Gerwin v Southeastern California Assn. of
Seventh Day Adventists, 14 Cal App 3d 209, 218). Even assuming,
arguendo, that plaintiff met its initial burden on the motion, we
conclude that defendant submitted evidence in opposition to the motion
from which it could be determined that, under the circumstances, cover
was not reasonably available (see Jewell-Rung Agency, Inc., 814 F Supp
at 341-342).

     We agree with plaintiff, however, that defendant’s demand for
punitive damages is not supported by allegations of a pattern of
egregious conduct directed at the public in general and the court
therefore erred in denying that part of plaintiff’s motion to strike
that demand from defendant’s pleading (see Rocanova v Equitable Life
Assur. Socy. of U.S., 83 NY2d 603, 613; Wright v Selle, 27 AD3d 1065,
1067). We thus modify the order accordingly.

     We also agree with plaintiff that the court abused its discretion
in granting that part of defendant’s cross motion for leave to amend
its pleadings by adding a counterclaim for breach of the implied
covenant of good faith and fair dealing, and we therefore further
modify the order accordingly. “Allegations that defendant violated
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                                                         CA 13-00949

‘the implicit contractual duties of good faith and fair dealing’ are
not sufficient to state a ‘violation of a duty independent of the
contract’ ” (Makuch v New York Cent. Mut. Fire Ins. Co., 12 AD3d 1110,
1111). Defendant’s proposed counterclaim for breach of the implied
covenant of good faith and fair dealing was duplicative of its breach
of contract counterclaim and leave to add that counterclaim should
have been denied on the ground that the counterclaim was palpably
insufficient on its face (see generally Matter of Clairol Dev., LLC v
Village of Spencerport, 100 AD3d 1546, 1546).

     We agree with defendant, however, that the proposed second
amended answer sets forth a viable counterclaim for fraud. Defendant
does not allege merely that plaintiff entered into the contract while
misrepresenting its intent to perform as agreed (see Citibank v
Plapinger, 66 NY2d 90, 93-94, rearg denied 67 NY2d 647). Rather,
defendant, alleges that, after the contract was made, plaintiff
repeatedly misrepresented or concealed existing facts concerning
plaintiff’s performance thereunder. The fraud counterclaim thus
alleges wrongful conduct and injurious consequences independent of
those underlying the breach of contract counterclaim (see Deerfield
Communications Corp. v Chesebrough-Ponds, Inc., 68 NY2d 954, 956;
Eagle Comtronics v Pico Prods., 256 AD2d 1202, 1203).

Entered:   July 3, 2014                         Frances E. Cafarell
                                                Clerk of the Court