New York State Urban Dev. Corp. v Paul T. Freund Corp.

[*1] New York State Urban Dev. Corp. v Paul T. Freund Corp. 2009 NY Slip Op 50553(U) [23 Misc 3d 1102(A)] Decided on March 31, 2009 Supreme Court, New York County Stallman, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 March 31, 2009
Supreme Court, New York County

New York State Urban Development Corporation d/b/a EMPIRE STATE DEVELOPMENT CORPORATION, Plaintiff,

against

Paul T. Freund Corporation, Defendant.



402965/2007



Appearances:

For Plaintiff:

Law Offices of Donald Tobias

445 Park Avenue, 17th Floor

New York, New York 10022

(212) 759-4200

For Defendant:

Woods, Oviatt, Gilman, LLP

By: Robert D. Hooks, Esq.

700 Crossroads Building

2 State Street

Rochester, New York 14614

(716) 585-2800

Michael D. Stallman, J.

In this action, plaintiff seeks to recover a portion of a grant awarded to defendant in exchange for meeting job employment goals, pursuant to a Capital Grant Disbursement Agreement entered into as of March 15, 2000. By letter agreement dated March 21, 2003, the parties amended the Capital Grant Agreement. Defendant counterclaims to reform the amendment on the ground of an alleged scrivener's error. [*2]

Plaintiff now moves for summary judgment in its favor against defendant, and for summary judgment dismissing defendant's counterclaim for reformation (Motion Seq. No. 002). Defendant moves for an order compelling plaintiff to respond to its discovery demands, or in the alternative, for an order striking plaintiff's complaint and for attorneys' fees (Motion Seq. No. 003). This decision addresses both motions.

BACKGROUND

Defendant allegedly specializes in the manufacturing of quality paperboard packaging, including gift, photo, and other rigid paperboard boxes. Defendant claims that, in 1998, the Wayne County Industrial Development Agency delivered a proposal to defendant for a capital grant in exchange for keeping its existing business operations in Palmyra, New York. Plaintiff alleges that defendant approached plaintiff in 1999 for a grant to expand its business operations.

Plaintiff and defendant entered into a Capital Grant Disbursement Agreement as of March 15, 2000 (the Agreement). Dalton Affirm., Ex A. As set forth in the Agreement, in consideration of receiving a grant for $325,000 from plaintiff, defendant agreed to complete a General Project Plan attached as Exhibit A to the Agreement. The General Project Plan provides for construction of a new freestanding 35,000 square foot facility and for the purchase and installation of new production machinery and equipment. According to the General Project Plan, the number of employees at the facility to be built would be 105 employees after three years, and 148 employees after five years. Dalton Affirm., Ex A. However, the Agreement also stated that defendant would achieve employment goals as set forth in Exhibit D to the Agreement, which provides that the projected employment of 148 employees would occur after three years, and be maintained for the next two years. The Agreement has an expiration date of March 31, 2005.

By letter agreement dated March 21, 2003, the parties agreed to modify Exhibit D to the Agreement to provide that 148 employees would be projected after five years of the Agreement, but would be maintained for two years thereafter, for 2006 and 2007. Dalton Affirm., Ex B. If defendant did not meet the projected employment goals, then defendant would be required to repay a percentage of the grant. The letter agreement also states, in pertinent part, "Except as hereinabove modified, all other terms and conditions of the Agreement remain in full force and effect." Ibid.

By letter dated April 3, 2007, plaintiff declared defendant in default under the Agreement, because it failed to submit a report of employment for January 2007. Plaintiff therefore demanded defendant to repay 20% of the grant that it received.

DISCUSSION

The standards for summary judgment are well settled. "[T]he proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact. Failure to make such prima facie showing requires a denial of the motion, regardless of the sufficiency of the opposing papers. Once this showing has been made, however, the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action"

Alvarez v Prospect Hosp., 68 NY2d 320, 324 (1986)(internal citations omitted). [*3]

Plaintiff has established prima facie entitlement to summary judgment in its favor against defendant. Plaintiff submits copies of the Agreement, the letter agreement modifying Exhibit D to the Agreement, and a letter declaring defendant's default because defendant refused to submit a report of employment for January 2007. Section 9 of the Agreement states, in pertinent part: "(a) Each of the following shall constitute a default by the Grantee [defendant] under this Agreement:

(i) Failure to perform or observe any obligation or covenant of the Grantee [defendant] contained herein, including the failure by the Grantee to achieve the employment goals required herein, or the failure by the Grantee to perform the tasks or submit the reports required herein to the reasonable satisfaction of ESDC [plaintiff]"

Dalton Affirm., Ex A. Defendant does not dispute the authenticity of the Agreement or the letter agreement. Defendant does not dispute that it did not provide a report for the employment goals for January 1, 2007. Neither does defendant claim that it maintained the employment goals for 2007.

In opposition, defendant argues that the letter agreement contains a scrivener's error. Although the letter agreement states on its face that the employment goal for defendant starts on January 1, 2003, defendant maintains that it should have been 2001, the first year of the Agreement, to make it consistent with the timetables in the General Project Plan. Thus, the other dates for the other employment goals should have been January 1, 2002, January 1, 2003, January 1, 2004, and January 1, 2005 accordingly. Because defendant asserts that it had 148 employees as of January 1, 2005, defendant concludes that it is not in default of the letter agreement.

Defendant also argues that the Agreement expired in 2005, because the letter agreement did not modify the expiration date of the Agreement. Defendant contends that the parties did not intend to the change the Agreement from a five year agreement to a seven year agreement, and that plaintiff gave no new consideration. According to defendant, such an extension would be an ultra vires act because there is no evidence in the record that defendant's board of directors approved the extension of the Agreement until 2007. Finally, defendant argues that the 20% repayment is an unenforceable penalty.

Defendant fails to raise a triable issue of fact as to whether the letter agreement contained scrivenor's errors. The letter agreement provides that the projected employment goal for January 1, 2003 would be 105 employees. If the letter agreement should have indicated that the first projected employment goal was for January 1, 2001, instead of January 1, 2003, then defendant would already be in default under the Agreement. Defendant had 80 employees as of January 1, 2001, not 105 employees. It makes no sense that the parties would have modified the Agreement so as to create a default for defendant at an earlier point in time in the parties' relationship.

"A modification agreement [leaves] intact * * * those provisions of the original agreement which were not expressly or impliedly supplanted'" Mary Matthews Interiors, Inc. v Levis, 208 AD2d 504, 506 (2d Dept 1994). Here, the letter agreement extended the employment goals that defendant needed to reach from January 1, 2005 to January 1, 2007. Because the extension goes beyond the original expiration date of the Agreement, the only reasonable, logical conclusion to be drawn is that the letter agreement impliedly supplanted the expiration date.

Defendant's ultra vires argument is unavailing. Business Corporation Law § 203 states, "No [*4]act of a corporation . . ., otherwise lawful, shall be invalid by reason of the fact that the corporation was without capacity or power to do such act." Whether plaintiff provided new consideration for the extending the job employment goals to years 2006 and 2007 does not affect the validity of the extension. "A written, signed agreement to discharge or modify an existing obligation is not rendered invalid because of the absence of consideration." GG Mgrs. v Fidata Trust Co. NY, 215 AD2d 241, 242 [1st Dept 1995], citing General Obligations Law § 5-1103.

Neither does the 20% repayment constitute an unenforceable penalty. The requirement of meeting projected employment goals is a condition subsequent of the Agreement, as a condition of keeping the $325,000 grant awarded to defendant. "A condition subsequent . . . . preserves the possibility that a contract can be set aside later in time if the condition is not fulfilled." Benincasa v Garrubbo, 141 AD2d 636, 638 (2d Dept 1988). As plaintiff indicates, it is seeking to recover those proceeds to which defendant was not entitled to retain following termination and rescission of the Agreement. The default percentage to be repaid is a measure of the plaintiff's liquidated damages, but a measure of the amount to be repaid in the event of rescission.

The letter agreement required defendant to achieve employment goals over a five year period. It is apparent that one-fifth of the grant was intended to compensate defendant for each year that employment goals were met. Accordingly, by January 1, 2007, the last year of the grant, only 20% of the original grant need to be repaid in the event of default. Given that plaintiff was bargaining for the creation and maintenance of jobs for each year of the agreement, the percentage bears a reasonable proportion to the probable loss of jobs for which plaintiff bargained.

Defendant also points out that it made a motion to compel plaintiff to respond to discovery requests. However, "the mere hope that evidence sufficient to defeat the motion may be uncovered during the discovery process is not enough to defeat a motion for summary judgment." Drepaul v Allstate Ins. Co., 299 AD2d 391, 393 (2d Dept 2002); Marine Midland Bank v Hakim, 247 AD2d 345 (1st Dept 1998).

Thus, the Court grants plaintiff's motion for summary judgment against defendant and summary judgment dismissing defendant's counterclaim for reformation.

Defendant's motion to compel discovery is denied as academic.

CONCLUSION

Accordingly, it is hereby

ORDERED that plaintiff's motion for summary judgment is granted, and plaintiff is awarded judgment against defendant in the amount of $65,000 plus interest at 9% per annum from January 1, 2007 until entry of judgment, and thereafter at the statutory rate, and defendant's counterclaim for reformation is dismissed; and it is further

ORDERED that defendant's motion to compel (Motion Seq. No. 003) is denied as academic.