Royal Warwick, S.A. v Hotel Representative, Inc.

[*1] Royal Warwick, S.A. v Hotel Representative, Inc. 2012 NY Slip Op 50336(U) Decided on February 27, 2012 Supreme Court, New York County Feinman, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 February 27, 2012
Supreme Court, New York County

Royal Warwick, S.A., Plaintiffs,

against

Hotel Representative, Inc., and LEADING HOTELS OF THE WORLD, LTD., Defendants.



650531/11E



Plaintiffs

White and Williams LLP

By: Andrew I. Hamelsky, Esq.

Emily M. Horsfield, Esq.

One Penn Plaza, ste. 4110

New York NY 10119

(212) 244-9500

Defendants

Kravet & Vogel LLP

By: Donald J. Kravet, Esq.

1040 Ave. of the Americas, ste. 1101

New York NY 10018

(212) 997-7634

Paul G. Feinman, J.

Papers considered on review of this motion to dismiss:

PapersE-Filing Document Numbers

Defendants' Notice of Motion, Aff. in Support, Exs. A, 1 - 146 through 7-15

Defendant's Memorandum of Law in Support8

Plaintiff's Memorandum of Law in Opp.10

Aff. in Opp.. Ex. A11, 11-1

Reply Memorandum of Law in Support14

Transcript of Oral Argument17

____________________________________________________________________________________________

Paul G. Feinman, J.:

In this action, plaintiff sues to recover damages arising out of defendants' alleged breach of a hotel reservation services agreement. The complaint alleges four causes of action: for [*2]payment of a $28,129.74 credit memo (first); for payment of shareholders' discounts and dividends owed under the reservation agreement (second); for $267,367.50 in costs resulting from plaintiff's termination of the agreement (third); and for an accounting (fourth). Defendants move pre-answer, pursuant to CPLR 3211 (a) (1) and (7), to dismiss the second, third and fourth causes of action. They also seek to have plaintiff post security for costs pursuant to CPLR 8501. As set forth below, the defendants' motion is granted in part and otherwise denied.

Background

Plaintiff Royal Warwick, S.A. (Royal Warwick), a foreign corporation with its principal place of business in Brussels, Belgium, owns and operates the Royal Windsor Hotel in Brussels. Verified Complaint (Complaint), Ex. A to Kravet Aff. in Support of Defendants' Motion, ¶ 5. In or about 1986, Royal Warwick became a member of a consortium of hotels (Consortium HR), known as "The Leading Hotels of the World." Id., ¶ 26. Members of Consortium HR became shareholders in Hotel Representative AG (HRAG), a Swiss company, which is the parent of a group of companies (the HRAG-Group) providing marketing, reservations, and other financial services to hotels operating under "The Leading Hotels of the World" trademark. See Consortium HR Agreement, Ex. 2 to Complaint; Confidential Memorandum, Ex. 10 to Complaint; HRAG Financial Statements, Ex. 11 to Complaint. The purpose of the consortium was to "maintain control over" and "achieve growth and the successful development of" HRAG and the HRAG-Group, and to assure that member hotels are of "the highest deluxe quality." See Consortium HR Agreement, § 2. Consortium HR members are required to enter into marketing and reservation services agreements with companies in the HRAG-Group. Id., § 4.

Defendants Hotel Representative, Inc. (HRI) and Leading Hotels of the World, Ltd. (LHW Ltd.), part of the HRAG-Group, are New York corporations providing marketing and reservation services to about 450 hotels worldwide. Complaint, ¶ 6. In or around September 2005, plaintiff entered into an agreement with defendants for hotel reservation services. See Agreement for Reservation Services (reservation agreement), Ex. 1 to Complaint.[FN1] The reservation agreement generally provided that defendants would accept and process reservations from consumers, travel agents, and other sources of hotel patronage, and transmit them to the Royal Windsor Hotel for a fee. Complaint, ¶ 21. Under the terms of the agreement, the fees paid by plaintiff were based on whether the reservations were made by voice, through a Global Distribution System (GDS), or through the internet, and whether the reservations were for an individual or a group. For individual reservations, the fees were 10% of the room revenue for voice reservations, and between $17.00 and $35.00 for each reservation received through the GDS and LHW Ltd.'s web site. See Reservation Agreement, Ex. 1 to Complaint, § 3.1.

Plaintiff alleges that, as a consortium member and shareholder in HRAG, it was entitled to receive a shareholder discount on reservation fees, and that this long-standing discount was provided in lieu of a dividend. Complaint, ¶¶ 34-35. According to the complaint, after concerns arose about tax and legal risks associated with the shareholder discount, the shareholder discount was abolished, to be replaced in late 2008 with a shareholder dividend. Id., ¶¶ 36-37. Plaintiff claims that, for the years 2006 and 2007, it received a 20% discount on voice reservations, paying [*3]an 8% fee instead of 10% as stated in the reservation agreement, but this discount was eliminated, without the required notice, in 2008. Id., ¶¶ 38, 61-62. Plaintiff also claims that, although a 39% discount on other reservation fees was promised, it received no discounts on reservations made through the GDS or the internet, and it received no dividends in place of the discontinued discounts. Id., ¶¶ 34, 60-61, 64.

In 2001, a dispute arose between plaintiff and defendants and HRAG, after another Brussels hotel located near the Royal Windsor was granted membership in Consortium HR. Plaintiff claimed that the admission process violated a covenant to it, and defendants contended that the Royal Windsor was not meeting the consortium's quality standards. Id., ¶¶ 27-28. A settlement agreement was reached in the matter, which provided, among other things, that plaintiff would receive an annual monetary credit toward reservation and marketing fees, which credit expired at the end of 2008, with a $28,000 credit remaining to plaintiff. See Settlement Agreement, Ex. 4 to Complaint; Credit Memo, Ex. 5 to Complaint. Plaintiff alleges that, after the credit agreement expired, defendants began to harass plaintiff by again claiming that the quality standards of the Royal Windsor were "borderline," and this harassment, together with defendants' elimination of discounts without notice, and failure to pay discounts or dividends, forced plaintiff, in May 2009, to terminate the reservation agreement. Complaint, ¶¶ 28-29.

Discussion

It is well settled that in determining a motion to dismiss pursuant to CPLR 3211 (a) (7), the pleadings are to be liberally construed. See CPLR 3026; Leon v Martinez, 84 NY2d 83, 87 (1994). The court must "accept as true the facts alleged in the complaint and any submissions in opposition to the dismissal motion ... [and] accord plaintiffs the benefit of every possible favorable inference." 511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144, 152 (2002); see Leon, 84 NY2d at 87-88; Guggenheimer v Ginzburg, 43 NY2d 268, 275 (1977). "The motion must be denied if from the pleadings' four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law.'" 511 W. 232nd Owners Corp., 98 NY2d at 152, quoting Polonetsky v Better Homes Depot, Inc., 97 NY2d 46, 54 (2001).

Thus, "the court's role in a motion to dismiss is limited to determining whether a cause of action is stated within the four corners of the complaint, and not whether there is evidentiary support for the complaint." Frank v DaimlerChrysler Corp., 292 AD2d 118, 121 (1st Dept 2002)(citations omitted). Where documentary evidence is considered, pursuant to CPLR 3211 (a) (1), the moving party must show that "the documentary evidence utterly refutes plaintiff's factual allegations, conclusively establishing a defense as a matter of law." Goshen v Mutual Life Ins. Co. of NY, 98 NY2d 314, 326 (2002); see Arnav Indus., Inc. Retirement Trust v Brown, Raysman, Millstein, Felder & Steiner, 96 NY2d 300, 303 (2001); Leon, 84 NY2d at 88. Second Cause of Action (Breach of Contract)

The second cause of action alleges that defendants breached the reservation agreement by failing to provide shareholder discounts on reservations and marketing fees, and by failing to pay dividends. Complaint, ¶¶ 60-65. Defendants move to dismiss this cause of action on the grounds that the reservation agreement clearly sets out the fee schedule, which included no discount for shareholders, and the contract permitted no oral modification of its terms. Plaintiff asserts, however, that the agreement was effectively modified to provide shareholders a discount on fees, as shown by minutes of Consortium HR shareholder meetings, as well as by a long-[*4]standing practice to provide shareholder discounts, both before and after the execution of the 2005 agreement.

"The fundamental, neutral precept of contract interpretation is that agreements are construed in accord with the parties' intent," and " [t]he best evidence of what parties to a written agreement intend is what they say in their writing.'" Greenfield v Philles Records, Inc., 98 NY2d 562, 569 (2002) (internal citations omitted); see Innophos, Inc. v Rhodia, S.A., 10 NY3d 25, 28 (2008); Slamow v Delcol & Co., 79 NY2d 1016, 1018 (1992). Consequently, "a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms." Greenfield, 98 NY2d at 569; see R/S Assoc. v New York Job Dev. Auth., 98 NY2d 29, 32 (2002); W.W.W. Assoc., Inc. v Giancontieri, 77 NY2d 157, 162 (1990). "Further, a contract should be read as a whole, and ... interpreted as to give effect to its general purpose.'" Beal Sav. Bank v Sommer, 8 NY3d 318, 324-325 (2007), quoting Matter of Westmoreland Coal Co. v Entech, Inc., 100 NY2d 352, 358 (2003); see Bailey v Fish & Neave, 8 NY3d 523, 528 (2007); Excess Ins. Co. Ltd. v Factory Mut. Ins. Co., 3 NY3d 577, 582 (2004).

"As a general rule, where a contract has a provision which explicitly prohibits oral modification, such clause is afforded great deference." Healy v Williams, 30 AD3d 466, 467 (2d Dept 2006); see Rose v Spa Realty Assoc., 42 NY2d 338, 343 (1977); Tierney v Capricorn Investors, L.P., 189 AD2d 629, 631 (1st Dept 1993); see also General Obligations Law § 15-301 (1)[FN2]. There are well recognized exceptions to that rule, however, and, under certain circumstances, "the inclusion of a general merger clause does not preclude an oral modification of the agreement." Stendig, Inc. v Thom Rock Realty Co., 163 AD2d 46, 49 (1st Dept 1990); see Rose, 42 NY2dat 343 (contractual prohibition against oral modification may be waived); B. Reitman Blacktop, Inc. v Missirlian, 52 AD3d 752, 754 (2d Dept 2008) (parties' "mutual departure from the written agreement" supported finding of oral modification).

"[E]ven if a contract expressly provides for modifications to be in writing, an oral modification will be enforced where it has been fully performed." J & R Landscaping, Inc. v Damianos, 1 AD3d 563, 564 (2d Dept 2003); see Healy, 30 AD3d at 467. An oral modification also is enforceable if there is partial performance of the modification, which is "unequivocally referable to the oral modification." Rose, 42 NY2d at 343; see Healy, 30 AD3d at 467-468; Calica v Reisman, Peirez & Reisman, LLP, 296 AD2d 367, 369 (2d Dept 2002); F. Garofalo Elec. Co. v New York Univ., 270 AD2d 76, 80 (1st Dept 2000); see also DLJ Mtge. Capital, Inc. v Fairmont Funding, Ltd., 2009 WL 2198265, 2009 NY Misc LEXIS 6037, **10, 2009 NY Slip Op 31562(U), *8 (Sup Ct, NY County 2009), affd 81 AD3d 563 (1st Dept 2011) (waiver of merger clause may be shown by words or conduct, including partial performance).

As the Court of Appeals has explained,

"[W]hen the oral agreement to modify has in fact been acted upon to completion, the ... need to protect the integrity of the written agreement from false claims of modification does not arise ... Where there is partial performance of the oral modification sought to be enforced, the likelihood [*5]that false claims would go undetected is similarly diminished. [In both situations,] the court may consider not only past oral exchanges, but also the conduct of the parties ... [Additionally,] [o]nce a party to a written agreement has induced another's significant and substantial reliance upon an oral modification, the first party may be estopped from ... bar[ring] proof of that oral modification."

Rose, 42 NY2d at 343-344.

In this case, plaintiff alleges that, dating back to 1999, Consortium HR members received a discount on reservation fees, and that, after implementation of the 2005 reservation agreement, plaintiff continued to receive a discount, at least on some fees. Plaintiff asserts that it received a 20% discount on fees for voice reservations in 2006 and 2007, but not in 2008, and it received no discount on fees for other channels of reservations during 2006-2008. Accepting the pleadings as true, and giving them every favorable inference, as the court must on a motion to dismiss, plaintiff has sufficiently alleged "partial performance" to support a claim that the 2005 reservation agreement was amended.

In addition, annexed to the complaint are minutes of Consortium HR meetings, which indicate that HRI acknowledged a discount on fees for shareholders, including an 8% fee, instead of the contractual 10%, for voice reservations, and a $30.00 fee, instead of $35.00, for GDS and internet reservations. See Minutes of the 1999 Annual Meeting of the Members of Consortium HR, Ex. 6 to Complaint. The minutes also indicate that the discounts continued through 2008. See Minutes of the 2008 Annual Meeting of the Members of Consortium HR, Ex. 8 to Complaint. These minutes, even if not in admissible form, raise issues of fact as to what, if any, discount was agreed to during the term of the 2005 reservation agreement. See generally DFI Communications, Inc. v Greenberg, 41 NY2d 602, 606-607 (1977) (recorded minutes of a meeting of the board of directors may be enough to show executory amendment; objections to document may be litigated at trial).

With respect to the claim for dividends, however, the allegations are insufficient to support a claim that the reservation agreement was further modified to include payment of dividends. By plaintiff's own acknowledgment, the discount on reservation fees "was, in essence a fee paid in lieu of a dividend," and no dividends had ever been paid to shareholders. Complaint, ¶ 35. The complaint alleges no more than that dividends were promised, and were intended to replace the shareholder discounts after 2008. Even assuming that such dividends were contemplated or promised, "a mere statement of an intention, even if expressed unconditionally and unequivocally does not, on its own, give rise to a binding contract." Smith v Smith, 66 AD3d 584, 585 (1st Dept 2009); see Sabo v Delman, 3 NY2d 155, 160 (1957) (mere promissory statements as to what will be done in the future are not actionable). Nor, in any event, was payment of the anticipated dividends connected to the reservation agreement, much less "unequivocably referrable" to oral modification of the agreement.

Third Cause of Action (Damages)

The third cause of action seeks damages in the amount of $267,367.50 for costs resulting from plaintiff's "forced" termination of the reservation agreement. Plaintiff claims that it is entitled to recover the costs of changing the "electronic and other distribution channels" and replacing materials that referenced "The Leading Hotels of the World," including $165,000 for [*6]"professional services," about $32,000 for system and operational modifications, and about $69,000 to remove and replace such articles as stationery and menus. Complaint, ¶ 40; see List of Direct costs, Ex. 9 to Complaint. Defendants move to dismiss this cause of action based on a provision in the reservation agreement barring recovery of consequential damages. See Reservation Agreement, § 6.2. Plaintiff contends that this provision is not applicable here, because plaintiff is seeking direct, not consequential damages, and because the limitation of liability clause is inconsistent and unclear.

Section 6.2 of the reservation agreement addresses "errors that may arise in processing and communicating reservations," and provides that absent notice by plaintiff of such errors, defendants are not

"responsible or liable for any loss of revenue or any other kind of damage to you or the Hotel resulting from any malfunction or breakdown in the reservation and/or communication system of LHW ... or of any errors or omissions committed by us ... in the processing of reservations, unless in the case of willful misconduct. Under no circumstances shall we ... be responsible or liable for any consequential, exemplary, special or punitive damages."

Such a contractual limitation on liability generally is enforceable, "except that public policy forbids a party from attempting to avoid liability for damages caused by grossly negligent conduct." Obremski v Image Bank, Inc., 30 AD3d 1141, 1141-42 (1st Dept 2006) (citations omitted); see Metropolitan Life Ins. Co. v Noble Lowndes Intl., 84 NY2d 430, 436 (1994); Lago v Krollage, 78 NY2d 95, 99-100 (1991); Pacnet Network Ltd. v KDDI Corp., 78 AD3d 478, 480 (1st Dept 2010). To be enforceable, however, such an exculpatory provision must express "in unequivocal terms the intention of the parties to relieve a defendant of liability ..." Uribe v Merchants Bank of NY, 91 NY2d 336, 341 (1998) (internal quotation marks and citation omitted). As with any contract clause, whether such a provision is ambiguous is a question of law for the court (see Van Wagner Adv. Corp. v S & M Enters., 67 NY2d 186, 191 [1986]), and should be determined "by looking within the four corners of the document, not to outside sources." Kass v Kass, 91 NY2d 554, 566 (1998), citing W.W.W. Assoc., Inc., 77 NY2d at 162-163. "A contract is ambiguous if on its face [it] is reasonably susceptible of more than one interpretation.'" Telerep, LLC v U.S. Intl. Media, LLC, 74 AD3d 401, 402 (1st Dept 2010), quoting Chimart Assoc. v Paul, 66 NY2d 570, 573 (1986); see Foot Locker, Inc. v Omni Funding Corp. of Am., 78 AD3d 513, 515 (1st Dept 2010). Further, any " ambiguities ... are ... to be construed against the [drafter], particularly when found in an exclusionary clause.'" Uribe, 91 NY2d at 341, quoting Ace Wire & Cable Co. v Aetna Cas. & Sur. Co., 60 NY2d 390, 398 (1983).In this case, it is unclear from the face of the reservation agreement whether the parties intended that the limitation of liability clause apply to all claims arising out of the contract, or whether it applied only to claims arising out of errors in "processing and communicating reservations." See Reservation Agreement, § 6.2. Because at least two reasonable interpretations of § 6.2 are possible, the provision is ambiguous (see Van Wagner Adv. Corp., 67 NY2d at 191), and dismissal "pre-answer before the development of a full factual record as to the parties' intent" is not appropriate. Telerep, LLC, 74 AD3d at 403; see Hambrecht & Quist Guar. Fin., LLC v El Coronado Holdings, LLC, 27 AD3d 204, 204 (1st Dept 2006).

In view of this finding, the court does not reach the question of whether plaintiff seeks, or would be entitled to, consequential damages. The court notes, however, that it is well established [*7]that "in breach of contract actions the nonbreaching party may recover general damages which are the natural and probable consequence of the breach.' Special, or consequential damages, which do not so directly flow from the breach,' are also recoverable in limited circumstances." Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of NY, 10 NY3d 187, 192 (2008) (citations omitted); see American List Corp. v U.S. News & World Report, Inc., 75 NY2d 38, 43 (1989); Kenford Co. v County of Erie, 73 NY2d 312, 319 (1989). Described as damages "which do not arise out of the immediate transaction between the contracting parties, but which stem from losses incurred by the nonbreaching party in its dealings with third parties" (437 Madison Ave. Assoc. v A.T. Kearney, Inc., 127 Misc 2d 37, 38-39 [AT 1st Dept 1985] [citations omitted]), consequential damages "are recoverable only upon a showing that they were foreseeable and within the contemplation of the parties at the time the contract was made." American List Corp., 75 NY2d at 43; see Bi-Economy Mkt., Inc., 10 NY3d at 192; Kenford Co., 73 NY2d at 319; Rose Lee Mfg., Inc. v Chemical Bank, 186 AD2d 548, 551 (2d Dept 1992). Consequential damages must, of course, "be proximately caused by the breach and must be proven by the party seeking them." Bi-Economy Mkt., Inc., 10 NY3d at 193; see Quality Technology Servs. Holding, LLC v CheckM8, Inc., 2008 WL 3996233, 2008 NY Misc LEXIS 9068, 2008 NY Slip Op 32332(U) (Sup Ct, NY County 2008).

Plaintiff's third cause of action seeks, in essence, the cost of replacing services previously provided by defendants. The breach of contract claim, however, does not allege that defendants failed to provide reservation services under the contract, but, rather, that they failed to provide a discount on the fees for the services. Thus, the damages sought do not appear to flow directly from the breach. See Fertico Belgium, S.A. v Phosphate Chems. Exp. Assn., Inc., 70 NY2d 76, 82 (1987) (additional delivery costs did not arise within the scope of the immediate transaction but stem from losses incurred from dealings with other party, and are consequential damages); Pacnet Network Ltd. v KDDI Corp., 25 Misc 3d 1203(A), ***20-21 (Sup Ct, NY County 2009), affd 78 AD3d 480 (1st Dept 2010) (costs of "obtaining alternative capacity for the transmission of data" and "to interconnect to other cable systems in order to provide restored services to its network customers" are consequential damages). It has been held, in any event, that "where the breach of contract was a failure to pay money, plaintiff should be limited to a recovery of the contract amounts plus appropriate interest." Scavenger, Inc. v GT Interactive Software Corp., 289 AD2d 58, 58-59 (1st Dept 2001).

At this early stage of the proceedings, the court cannot find, as a matter of law, that plaintiff has no claim for the damages sought in the third cause of action. Whether plaintiff will be able to prove its entitlement to such damages is a determination that "at this juncture would be premature." Red Oak Fund, L.P. v MacKenzie Partners, Inc., 90 AD3d 527, 529 (1st Dept 2011) (internal quotation marks and citation omitted).

Fourth Cause of Action (Accounting)

The fourth cause of action seeks an accounting, based on allegations that defendants, or certain officers of defendants, engaged in self dealing and manipulation of defendants' funds, which impaired defendants' ability to pay shareholder discounts or dividends, in "breach of their duty under the Reservation Agreement." Complaint, ¶¶ 42-45, 71-72, 74. Plaintiff also claims that it is entitled to an accounting because it "appears" that the defendants' accounts "do not conform to the US GAAP requirements." Complaint, ¶ 73. [*8]

"The right to an accounting is premised upon the existence of a confidential or fiduciary relationship and a breach of the duty imposed by that relationship respecting property in which the party seeking the accounting has an interest." Palazzo v Palazzo, 121 AD2d 261, 265 (1st Dept 1986); see Unitel Telecard Distrib. Corp. v Nunez, 90 AD3d 568, 569 (1st Dept 2011); Adam v Cutner & Rathkopf, 238 AD2d 234, 242 (1st Dept 1997). "A fiduciary relationship exists between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation (Restatement [Second] of Torts § 874, Comment a).'" EBC I, Inc. v Goldman, Sachs & Co., 5 NY3d 11, 19 (2005); see Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 561 (2009). "Stated differently, [a] fiduciary relation exists when confidence is reposed on one side and there is resulting superiority and influence on the other." AG Capital Funding Partners, L.P. v State St. Bank & Trust Co., 11 NY3d 146, 158 (2008) (internal quotation marks and citation omitted); see Eurycleia Partners, LP, 12 NY3d at 561.

"Such a relationship, necessarily fact-specific, is grounded in a higher level of trust than normally present in the marketplace between those involved in arm's length business transactions." EBC I, Inc., 5 NY3d at 19, citing Northeast Gen. Corp. v Wellington Adv., Inc., 82 NY2d 158, 162 (1993); see Atkins Nutritionals, Inc. v Ernst & Young, LLP, 301 AD2d 547, 549 (2d Dept 2003); V. Ponte & Sons, Inc. v American Fibers Intl., 222 AD2d 271, 272 (1st Dept 1995). Thus, "a conventional business relationship, without more, is insufficient to create a fiduciary relationship. Rather, a plaintiff must make a showing of "special circumstances" that could have transformed the parties' business relationship to a fiduciary one ..., such as control by one party of the other for the good of the other.'" AHA Sales, Inc. v Creative Bath Prods., Inc., 58 AD3d 6, 21-22 (2d Dept 2008) (citations omitted); L. Magarian & Co. v Timberland Co., 245 AD2d 69, 70 (1st Dept 1997); V. Ponte & Sons, Inc., 222 AD2d at 272.

"Generally, where parties have entered into a contract, courts look to that agreement to discover ... the nexus of [the parties'] relationship and the particular contractual expression establishing the parties' interdependency.' If the parties ... do not create their own relationship of higher trust, courts should not ordinarily transport them to the higher realm of relationship and fashion the stricter duty for them.'" EBC I, Inc., 5 NY3d at 19-20 (citations omitted); see First Keystone Consultants, Inc. v DDR Constr. Servs., 74 AD3d 1135, 1136 (2d Dept 2010). While "conduct amounting to breach of a contractual obligation may also constitute the breach of a duty arising out of the relationship created by contract which is nonetheless independent of such contract" (Bullmore v Ernst & Young Cayman Islands, 45 AD3d 461, 463 [1st Dept 2007] [citation omitted]), "a cause of action alleging breach of a fiduciary duty, which ... is merely duplicative of a breach of contract claim, cannot stand." Hylan Elec. Contr., Inc. v MasTec N. Am., Inc., 74 AD3d 1148, 1150 (2d Dept 2010); see Morgenroth v Toll Bros., Inc., 60 AD3d 596, 597 (1st Dept 2009); LaSalle Hotel Lessee, Inc. v Marriott Hotel Servs., Inc., 29 AD3d 464, 465 (1st Dept 2006).

Here, plaintiff's claim of breach of fiduciary duty rests entirely on the allegation that defendants, by failing to provide shareholder discounts and dividends, breached "their duty under the Reservation Agreement." Complaint, ¶¶ 71-72. Plaintiff's claim for shareholder discounts, however, arises, as plaintiff alleges, solely under the parties' reservation agreement, and creates a contractual, not a fiduciary obligation. See Superior Officers Council Health & Welfare Fund v [*9]Empire HealthChoice Assur., Inc., 85 AD3d 680, 682 (1st Dept 2011) (alleged right to rebates under agreement created no fiduciary duty independent of agreement); Celle v Barclays Bank P.L.C., 48 AD3d 301, 302 (1st Dept 2008) (no breach of fiduciary claim where agreement covers the precise subject matter of the alleged duty); Blue Rock Props., LLC v Mann, 2011 WL 1212725, 2011 NY Misc LEXIS 1249, *8, 2011 NY Slip Op 30713(U), **8 (Sup Ct, NY County 2011) (right to commission under agreement creates contractual, not a fiduciary duty). Plaintiff also alleges no "damages directly caused by" any misconduct other than defendants' alleged breach of contract. See Palmetto Partners, L.P. v AJW Qualified Partners, LLC, 83 AD3d 804, 807 (2d Dept 2011) (cause of action for breach of fiduciary duty requires damages directly caused by alleged misconduct); Rut v Young Adult Inst., Inc., 74 AD3d 776, 777 (2d Dept 2010) (same).

Plaintiff's argument that a fiduciary relationship existed between plaintiff and defendants because "Royal Warwick is a shareholder of Hotel Representative AG, which holds itself out as LHW," and, "[a]s such, Royal Warwick is a shareholder of LHW"[FN3] (Plaintiff's Brief in Opp., at 26), is unavailing. Although, as a member of Consortium HR, plaintiff is a shareholder in HRAG, plaintiff is not a shareholder in either HRI or LHW Ltd., which, as subsidiaries of HRAG, have separate legal identities. See Dempsey v Intercontinental Hotel Corp., 126 AD2d 477, 478 (1st Dept 1987) (courts will disregard separate legal identities of parent and subsidiary only when parent completely controls subsidiary's activities); see also Ahearn v Gluck, 243 AD2d 431, 431 (2d Dept 1997) (a parent corporation cannot be held liable for its subsidiary's wrongdoing merely because it owns the subsidiary). Plaintiff submits no authority to support its claim that as a shareholder of the parent company, it obtains the status of a shareholder of, or otherwise stands in a fiduciary relationship with, the subsidiary companies. To the contrary, there is authority that "there is no fiduciary relationship between the wholly owned subsidiary and the shareholders of the parent." Matter of Kidder Peabody Secs. Litig., 1995 WL 590624, *4, 1995 US Dist LEXIS 14481, *12 (SD NY 1995); see Lama Holding Co. v Smith Barney Inc., 88 NY2d 413, 424 (1996) (applying Delaware law); Ivers v Keene Corp., 780 F Supp 185, 188 (SD NY 1991).

Moreover, even if a fiduciary relationship existed between HRAG's shareholders and defendants, the claim here is not one for which plaintiff could sue individually. "[A]llegations of mismanagement or diversion of assets by officers or directors to their own enrichment, without more, plead a wrong to the corporation only, for which a shareholder may sue derivatively but not individually." Abrams v Donati, 66 NY2d 951, 953 (1985), citing Niles v New York Cent. & Hudson Riv. R. R. Co., 176 NY 119, 123 (1903); see Glenn v Hoteltron Sys., Inc., 74 NY2d 386, 392 (1989); Continental Cas. Co. v PricewaterhouseCoopers, LLP, 57 AD3d 411 (1st Dept 2008). "Courts have repeatedly held that an allegation of diminution in the value of stock based on a breach of fiduciary duty gives rise to a derivative action only." Hahn v Stewart, 5 AD3d 285, 286 (1st Dept 2004) (internal quotation marks and citation omitted); see Niles, 176 NY at 123 (because depreciation in value of stock is same injury to all stockholders, claim is therefore [*10]derivative); Wolf v Rand, 258 AD2d 401, 403 (1st Dept 1999); Paradiso & DiMenna, Inc. v DiMenna, 232 AD2d 257, 258 (1st Dept 1996).

Plaintiff claims that defendants' alleged wrongdoing "resulted in reducing the net worth of the group and its ability to pay ... discounts or ... dividends." Complaint, ¶ 72. Thus, the harm resulting from the alleged misconduct is to all shareholders, and the corporation, and is a derivative, not direct, injury. See Glenn, 74 NY2d at 392; Fisher v Big Squeeze (NY), Inc., 349 F Supp 2d 483, 488 (ED NY 2004). Additionally, under New York's Business Corporation Law, the remedy of a corporate accounting "may be sought by a shareholder only in a derivative action brought in the right of the corporation." Romanoff v Superior Career Inst., Inc., 69 AD2d 856, 856 (2d Dept 1979); see Business Corporation Law § 720 (b); Fisher, 349 F Supp 2d at 488. "A complaint the allegations of which confuse a shareholder's derivative and individual rights will, therefore, be dismissed." Abrams, 66 NY2d at 953 (citations omitted).

Thus, for the reasons stated above, the fourth cause of action is dismissed.

Security for Costs

Defendants also move, pursuant to CPLR 8501 (a), for an order directing plaintiff to post security for costs, in the amount of not less than $25,000. CPLR 8501 (a) requires a plaintiff to post security for costs when plaintiff is not a resident of the state or is a foreign corporation not licensed to do business in the state. As plaintiff undisputedly is a foreign corporation not licensed to do business in the state, it is subject to the mandate of CPLR § 8501 (a).

Under CPLR 8503, the amount of the security shall be, in counties in New York City, five hundred dollars ($500), "or such greater amount as shall be fixed by the court." While defendants are statutorily entitled to the posting of security for costs, the court finds that the imposition of $25,000 as security is not justified, especially in view of the dismissal of the cause of action for an accounting. See Halloway v KRNH, Inc., 64 AD3d 751 (2d Dept 2009). The court, therefore, orders an undertaking in the amount of one thousand dollars ($1,000) as security for costs. Pursuant to CPLR 8502, all proceedings in this matter are stayed for 30 days pending the posting of the bond.

Conclusion

Accordingly, defendants' motion to dismiss is granted in part and denied in part to the extent that it is

ORDERED that the second cause of action is dismissed only as to any claim for dividends under the reservation agreement; and it is further

ORDERED that the fourth cause of action is dismissed in its entirety; and it is further

ORDERED that the remaining claims are severed and shall continue; and it is further

ORDERED that defendants Hotel Representative, Inc. and Leading Hotels of the World, Ltd. shall serve and file an answer to the complaint within twenty (20) days from the date of entry of this order; and it is further

ORDERED that plaintiff Royal Warwick, S.A. shall, within twenty (20) days from the date of entry of this order, either (1) pay into the Court the sum of $1,000 to be applied to the payment of statutory costs and allowable disbursements, if any, awarded against the plaintiff in this action, or (2) at its election, file with the Clerk of the Court an undertaking with sufficient surety in a like amount to be applied to the payment of statutory costs and allowable disbursements, if any, awarded against the plaintiff in this action; and it is further [*11]

ORDERED that all further proceedings other than as directed above or to review this order, are stayed for 30 days from the date of entry of this order; and it is further

ORDERED that counsel are directed to appear for a preliminary conference in Part 12, Room 212, 60 Centre Street, on April 4, 2012, at 2:15 PM.

Dated: February 27, 2012_________________________________________

New York, New YorkJ.S.C. Footnotes

Footnote 1:At about the same time, plaintiff also entered into an agreement for marketing services with non-party Hotel Representative AG Guernsey Branch (see Ex. 3 to Complaint), which is not at issue in this case.

Footnote 2:Under General Obligations Law § 15-301 (1), "[a] written agreement or other written instrument which contains a provision to the effect that it cannot be changed orally, cannot be changed by an executory agreement unless such executory agreement is in writing and signed by the party against whom enforcement of the change is sought or by his agent."

Footnote 3:Although it is unclear what entity "LHW" refers to here, the court considers the reference to include defendants.