Ross Network, Inc. v RSM McGladrey, Inc.

[*1] Ross Network, Inc. v RSM McGladrey, Inc. 2006 NY Slip Op 50778(U) [11 Misc 3d 1089(A)] Decided on May 1, 2006 Supreme Court, Nassau County Austin, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on May 1, 2006
Supreme Court, Nassau County

Ross Network, Inc. d/b/a PRINT INTERNATIONAL, Plaintiff,

against

RSM McGladrey, Inc. f/k/a AMERICAN EXPRESS TAX & BUSINESS SERVICES, INC., H & R BLOCK TAX SERVICES, INC. AND AMERICAN EXPRESS CO., Defendants,



19475-05



COUNSEL FOR PLAINTIFF

Moritt, Hock, Hamroff & Horowitz, LLP

400 Garden City Plaza - Suite 202

Garden City, New York 11530

COUNSEL FOR DEFENDANT

Andrews Kurth, LLP

450 Lexington Avenue

New York, New York 10017

Leonard B. Austin, J.

[*2]Defendants' Reply Memorandum of Law.

Defendants move pursuant to CPLR 3211(a)(1) and (7) to dismiss the complaint.

BACKGROUND

In December 2002, Plaintiff Ross Network, Inc. ("Ross") entered into an agreement with Defendant American Express Tax & Business Services, Inc. ("TBS") for the financing and installation of Best Enterprise Suite computer software ("BES Software"). The BES Software was to replace Ross' existing software with software which provided more features, was usable long term and which was tailored to meet the needs of Ross' business.

The agreement provided for payment of a substantial fee over five years plus the payment of the cost of additional hardware and software required.

Ross alleges that TBS represented that the software would be installed an operational by June 2003. Despite this representation and subsequent representations, the purchase of additional equipment and the payment of substantial amount of money under the agreement and for consulting fees and training fees by June 2005, Ross alleges that the BES Software was still not operational.

Based upon these claims, Ross commenced this action alleging eight causes of action; to wit: breach of contract (1st cause of action); breach of express warranty (2nd cause of action); negligent misrepresentation (3rd cause of action); lost profit (4th cause of action); unjust enrichment (5th cause of action); tortious interference with business (6th cause of action); negligence (7th cause of action); and rescission (8th cause of action).

Defendants move to dismiss the complaint pursuant to CPLR 3211(a)(1) and (7).

DISCUSSION

A. Contractual Limitations Period (CPLR 3211 [a][1]

CPLR 3211(a)(1) permits the court to dismiss an action based upon documentary evidence. In order to warrant dismissal pursuant to CPLR 3211(a)(1), the court must find that the documentary evidence totally refutes plaintiff's claim and conclusively establishes a defense as a matter of law. Goshen v. Mutual Life Ins. Co. of New York, 98 NY2d 314 (2002); Leon v. Martinez, 84 NY2d 83 (1994); 730 J & J LLC v. Fillmore Agency, Inc., 303 AD2d 486 (2nd Dept. 2003); and Berger v. Temple Beth-el of Great Neck, 303 AD2d 346 (2nd Dept. 2003).

The dismissal motion on this ground is founded upon Paragraph 7 of Appendix "A" of the agreement which provides that no cause of action may be brought by either party for claims arising under or relating to the agreement more than one year after the cause of action accrued except for an action for non-payment which must be brought no later than one year after the date the last payment was due.

New York's public policy and law permit parties to an agreement to shorten the limitations period established by statute, provided that the shorter time is reasonable. Planet Construction Corp. v. Board of Education of the City of New York, 7 NY2d 381 (1960); Protter v. Nathan's Famous Systems, Inc., 246 AD2d 585 (2nd Dept. 1998); and [*3]CPLR 201.

Defendants claim that all of the causes of action accrued in June 2003 which is the date by which the software was to be installed. Since all of the causes of action accrued at that time, the action had to be commenced by June 2004. Since this action was not commenced until December 2005, all of the causes of action are time barred.

Ross asserts its claims are not time barred because the Defendants had, and have, a continuing obligation under the terms of the agreement. Thus, a new breach giving rise to a new cause of action accrues daily. Ross also asserts that the Defendants have waived the agreement's one year limitations period.

The statute of limitations begins to run when the cause of action accrues. CPLR 203(a). Ross has pled causes of action for breach of contract, breach of warranty, quasi-contract, tort and equity.[FN1] In order to determine whether any of the causes of action are barred by the contractually shortened limitations period, the court must first determine when each of the causes of action accrued.

(1)Breach of Contract

A cause of action for breach of contract accrues and the statute of limitations begins to run when the breach occurs or when a party to the agreement fails to perform an obligation. Ely-Cruikshank Co., Inc. v. Bank of Montreal, 81 NY2d 399 (1993); Carranza v. Prinz, 240 AD2d 405 (2nd Dept. 1997); State v. Fenton, 68 AD2d 951 (3rd

Dept. 1979); and Edlux Constr. Corp. v. State, 252 App.Div. 373 (3rd Dept. 1937), aff'd., 2777 NY 635 (1938).

"Where a contract provides for continuing performance over a period of time, each breach may begin the running of the statute anew such that accrual occurs continuously." Airco Alloys Div., Airco Inc., v. Niagara Mohawk Power Corp., 76 AD2d 68 (4th Dept. 1980). See, Beller v. William Penn Life Ins. Co. of New York, 8 AD3d 310 (2nd Dept. 2004). The first, second and fourth causes of action are actions for breach of contract.

Pursuant to the agreement, Ross was to be provided with software, support, installation, project management, training and hardware for a period of five years. Correspondence from TBS to Ross in March and June 2005 indicate that the BES Software was not yet fully operational. This correspondence also indicates continuing issues with the systems, maintenance of the systems and open issues relating to change orders upon which the parties agreed.

The Court cannot determine from a fair reading of the complaint and Defendants' motion papers precisely when the events that give rise to the various breach of contract claims occurred. Since the Defendants had a continuing obligation, and it appears that some of the breaches occurred within one year of the commencement of this action, the first, second and fourth causes of action are not barred by the contractual one year limitations period. [*4]

(2)Negligent Misrepresentation

The cause of action for negligent misrepresentation accrued on the date when Defendants made the misrepresentations upon which Ross relied. Fandy Corp. v. Lung-Fong Chen, 262 AD2d 352 (2nd Dept. 1999).

The complaint alleges that Defendants represented that they could install and make the BES Software operational by June 2003. (Complaint ¶ 21). The complaint further alleges that subsequent thereto the Defendants represented in a series of e-mails that they would make the BES Software operational. (Complaint ¶ 22). These e-mails were sent by TBS to Ross during the period February 2003 through April 2005. The e-mails discuss numerous problems with the BES Software and reflect that TBS was attempting to resolve or fix the problems so that the software would be operational. If any of the e-mails in which TBS misrepresented that it could, and would, resolve the issues regarding the BES Software, upon which Ross relied, were sent less than one year prior to the commencement of this action, then those claims are not barred by the contractual limitations period.

(3)Unjust Enrichment

A cause of action for unjust enrichment accrues upon the occurrence of the wrongful act which gives rise to the obligation to make restitution. Elliott v. Qwest Communications Corp., 25 AD3d 897 (3rd Dept. 2006); and Congregation Yetev Lev

D'Satmar, Inc. v. 26 Adar N.B. Corp., 192 AD2d 501 (2nd Dept. 1993). The complaint makes rather general allegations regarding the wrongful acts which give rise to this cause of action. The complaint further alleges that TBS represented that the BES Software would be installed and operational by June 2003. The BES Software was still not fully operational on June 28, 2005.

Since the Court cannot determine what acts give rise to this cause of action and when those acts occurred, the Court cannot find, as a matter of law, that this cause of action is time barred.

(4)Tortious Interference with Business

The sixth cause of action alleges a claim for tortious interference with business. The facts underlying this claim involve allegations that Defendants attempted to hire Ross employees to assist them in the installation of BES Software. This is alleged to have intentionally and tortiously interfered with Ross' ability to run its business.

A cause of action for tortious interference with contract accrues when the injury is sustained. American Federal Group, Ltd. v. Edelman, 282 AD2d 279 (1st Dept. 2001).

The cause of action for tortious interference with contract is pled in extremely general terms. It does not specifically allege which employees TBS attempted to hire, whether these employees actually went to work for TBS or when the attempts to hire these employees were made. Without this information, the Court cannot determine when this cause of action accrued and whether it is time barred.

(5)Negligence

A cause of action for negligence accrues when the act constituting the negligence produce an injury, to wit: when all the elements of the tort can be alleged in the complaint. Snyder v. Town Insulation, Inc., 81 NY2d 429 (1993).

The negligence cause of action is supported by allegations that TBS required Ross to turn off its existing computer system so that the BES Software could be [*5]installed. TBS failure to install the BES Software leaving Ross without a computer system with which to operate its business.

The complaint and motion papers do not specify the date upon which Ross turned off its prior computer system or the date that upon which the installation of the BES Software actually began. This is not clarified by the motion papers. Without knowing when these events took place, the Court cannot determine when the cause of action accrued and thus, whether the claim is time barred.

(6)Rescission

"In order to justify the intervention of equity to rescind a contract, a party must allege fraud in the inducement of the contract; failure of consideration; an inability to perform the contract after it is made; or a breach in the contract which substantially defeats the purpose thereof. (Citation omitted)" Babylon Assocs. v. County of Suffolk, 101 AD2d 207, 215 (2nd Dept. 1984). If rescission is based upon a breach of the contract, the breach must be willful and material or, if not willful, so substantial as to defeat the purpose of the contract. Id. See also, Clarke Contracting Co. v. City of New

York, 229 NY 413 (1920); and Callanan v. Keeseville, Ausable Chasm & Lake Champlain Railroad Co., 199 NY 268 (1910).

The complaint alleges, in a most general and conclusory fashion, that TBS' breach of the contract is so material as to defeat the entire purpose of the agreement. The exact point at which it became apparent to Ross that TBS would be so incapable of performing the contract is not clear from the allegations contained in the complaint or the motion papers. Since the date upon which this cause of action accrued is not alleged, the Court cannot determine whether the action is time barred.

B. Failure to State a Cause of Action (CPLR 3211 [a][7])

This action clearly demonstrates the differences and dangers in moving to dismiss "the complaint" when the movants are really seeking to dismiss certain causes of action.

When a defendant moves to dismiss "the complaint", the motion must be denied in its entirety if any of the causes of action is legally sufficient. Anand v. Soni, 215 AD2d 420 (2nd Dept. 1995); and Maritarano Construction Corp. v. Briar Contracting Corp., 104 AD2d 1028 (2nd Dept. 1984). When a party moves to dismiss a specific cause of action, the court must determine whether the specific cause of action sets for a claim which is legally cognizable. See, Frank v. DaimlerChrysler Corp., 292 AD2d 118 (1sr Dept. 2002); and Long Island Diagnostic Imaging, P.C . v. Stony Brook Diagnostic Assocs., 215 AD2d 450 (2nd Dept. 1995). However, when the motion to dismiss is addressed to the complaint in its entirety, the court must look to see whether any cognizable theory of recovery has been alleged when viewing the complaint in a light most favorable to the plaintiff. One Acre Inc. v. Town of Hempstead, 215 AD2d 359 (2nd Dept. 1995). See, Guggenheimer v. Ginzburg, 43 NY2d 268 (1977).

Defendants' notice of motion specifically states that they seek to dismiss "the complaint"; not any specific causes of action. While several of the causes of action might have been subject to dismissal had Defendants requested that relief, the Court is constrained to find that the complaint is sufficient. The causes of action for negligent misrepresentation, negligence and unjust enrichment might well have been dismissed [*6]had Defendants moved to dismiss those causes of action and not "the complaint." Negligent misrepresentation requires proof of the existence of special relationship of trust or confidence. See, Wright v. Selle, -A.D.3d-, 811 NYS2d 525 (4th Dept. 2006). A cause of action for breach of contract does not give rise to separate cause of action for negligence unless the defendant breached a legal duty separate and apart from its contractual obligations. Clark-Fitzpatrick v. Long Island Rail Road Co., 70 NY2d 382 (1987). Recovery cannot be obtained for unjust enrichment because the relationship between Ross and TBS is contractual. A party cannot obtain recovery for unjust enrichment unless the written agreement between the parties "has been rescinded, is unenforceable or abrogated." Waldman v. Englishtown Sportswear, Ltd., 92 AD2d 833, 836 (1st Dept. 1983).

Thus, the motion to dismiss the complaint pursuant to CPLR 3211(a)(7) must be denied since, at the very least, the first cause of action undoubtedly states a cause of action for breach of contract. See, Furia v. Furia, 116 AD2d 694 (2nd Dept. 1986).

Accordingly, it is,

ORDERED, that Defendants' motion to dismiss the complaint pursuant to CPLR 3211(a)(1) and (7) is denied; and it is further,

ORDERED, that Defendants shall serve an answer within twenty (20) days of the date of this Order; and it is further,

ORDERED, that counsel for the parties shall appear for a preliminary conference on June 8, 2006 at 9:30 a.m.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY ______________________________

May 1, 2006 Hon. LEONARD B. AUSTIN, J.S.C.

Footnotes

Footnote 1: The cause of action for breach of warranty is, in reality, a cause of action sounding in contract. See, Denny v. Ford Motor Co., 87 NY2d 248 (1995)