Trafigura Beheer B.V. (Amsterdam) v South Caribbean Trading Ltd.
Annotate this CaseDecided on August 23, 2004
Supreme Court, New York County
TRAFIGURA BEHEER B.V. (AMSTERDAM), Plaintiff,
against
SOUTH CARIBBEAN TRADING LTD., Defendant.
602890/03
Attorneys for Plaintiff
Eaton & Van Winkle, LLP
3 Park Avenue
New York, New York 10016
Att: Robert K. Gross, Esq.
Attorneys for Defendant
Meier Franzino Scher
570 Lexington Avenue
New York, New York 10022
Att: Frank Franzino, Esq.
Helen E. Freedman, J.
In this action, plaintiff seeks to recover compensatory damages of approximately $9.6 million in connection with defendant's alleged failure to produce merchantable fuel oil in accordance with the parties' agreements. The complaint asserts causes of action for breach of contract, economic duress and promissory estoppel. On February 4, 2004, defendant moved to dismiss the complaint, pursuant to CPLR 3211 (a) (1), (5) and (7).
On March 12, 2004, plaintiff served its papers in opposition to defendant's motion, and also served an amended complaint, as of right, which contains the same causes of action as the original complaint, adding a new cause of action for breach of contract. All of the causes of action of the amended complaint are pleaded in the alternative. On March 12, 2004, plaintiff also cross-moved for an order declaring defendant's motion to dismiss moot by virtue of the superseding amended complaint, and requesting an opportunity to oppose any arguments that defendant directed toward the amended complaint.
Defendant's reply papers address the amended complaint. Plaintiff's reply papers in support of its cross motion address defendant's reply papers, thereby rendering plaintiff's cross motion moot. The following addresses defendant's motion to dismiss the amended complaint.
Facts
Plaintiff Trafigura Beheer B.V. (Amsterdam) (Trafigura) is an international commodity trading company, organized under the laws of the Netherlands. Defendant South Caribbean Trading Ltd. (SCT) is a Bahamas corporation.
On May 26, 1999, the parties entered into three agreements for the production and delivery of merchantable fuel oil: the Blendstock Agreement, the Components Agreement, and the Finished Product Agreement (together, Agreements). Each of the Agreements states that it "contains the entire agreement of both parties and it cannot be modified unless in writing," and that disputes arising out of the Agreements will be resolved in New York courts under New York law.
Under the Blendstock Agreement, Trafigura purchased 650,000 barrels of Blendstock (watered fuel oil) from SCT for $8.50 per barrel, which was allegedly intended to finance SCT's [*2]production of fuel oil. Then, in the open market, Trafigura was to purchase other petroleum products (Components) specified by SCT, to be used in the production of fuel oil. Under the Components Agreement, SCT would purchase the Components, and repurchase the Blendstock, from Trafigura. SCT would then perform the blending process, blending the Blendstock with the Components, and sell the finished product back to Trafigura. Under the Finished Product Agreement, SCT agreed to produce 1.2 million barrels of merchantable fuel oil (Fuel Oil), between June 1 and October 31, 1999, at the fixed price of $11.89 per barrel.
Subsequently, Trafigura allegedly entered into hedging agreements with third parties, to hedge against the risk of the price in fuel oil dropping below the fixed price of $11.89 per barrel. According to the amended complaint, SCT failed to deliver the finished Fuel Oil between June and October 1999, but instead, delivered it in five installments over 18 months, between September 1999 and March 2001.
According to the amended complaint, "Trafigura accepted SCT's late ... deliveries as nonconforming tender under the parties' contract." Trafigura also claims that it "duly objected to SCT's delivery delays," and that it "advised SCT of its intention to hold SCT liable for the resulting damages ...."
Trafigura alleges that it was forced to accept SCT's late Fuel Oil deliveries, because SCT threatened to cease performance under the Agreements, leaving Trafigura unable to perform under its hedging agreements with third parties. As a result, Trafigura avers, it was obliged to roll over its hedging agreements until receiving physical deliveries of the Fuel Oil from SCT. Otherwise, Trafigura claims, it would have faced the prospect of an immediate $6.7 million loss on a close out of its hedging agreements in October 1999. Trafigura also claims that it was unable to purchase fuel oil from another seller at SCT's below-market price.
Trafigura maintains that "SCT expressly promised and agreed to remain liable for any losses that Trafigura might ultimately suffer by reason of SCT's initial delivery failures," including losses sustained in connection with the hedging contracts. These "promises" and "agreements" were allegedly made during "discussions" between representatives of Trafigura and SCT, which, orally modified the Finished Product Agreement.
Trafigura claims that it suffered damages in the amount of $14 million upon closing out the hedging agreements, and that it incurred costs of $500,000 in storing Components for use in SCT's blending program. Trafigura alleges that it earned $4.9 million on the resale of the Fuel Oil that was delivered by SCT, leaving Trafigura with a net loss of approximately $9.6 million.
Discussion -
Standard On Motion To Dismiss
SCT argues that, by annexing the Agreements, as documentary evidence, to the amended complaint, Trafigura "altered the standard" to be applied on this motion to dismiss. Citing Biondi v Beekman Hill House Apt. Corp., 257 AD2d 76 [1st Dept 1999], affd 94 NY2d 659 (2000), SCT contends that the facts of the amended complaint are not presumed to be true, and that "[i]t was incumbent upon Trafigura to annex copies of the alleged hedging contracts and any other documentary evidence it possessed in opposition to SCT's motion".
This characterization of the law is inaccurate. CPLR 3211 does not require Trafigura to produce documentary evidence to establish its claims at the pleading stage of the litigation. Biondi, supra merely requires a plaintiff to have rather than merely state a cause of action to [*3]withstand a motion to dismiss. See Guggenheimer v. Ginzburg, 43 NY2d 268.
First Cause of Action - Breach of Contract
SCT moves to dismiss the first cause of action for breach of contract, arguing that this claim is inconsistent with the terms of the Finished Product Agreement, and that the cause of action is barred by Section 2-606 of the Uniform Commercial Code, which imposes an obligation on a buyer to effectively reject nonconforming goods after having a reasonable amount of time to inspect them. Trafigura argues that it has satisfied the elements of a cause of action for breach of contract, and that its right to damages is preserved under New York law.
The elements of a cause of action for breach of contract are the formation of a contract between plaintiff and defendant, performance by plaintiff, defendant's failure to perform, and resulting damages. Furia v Furia, 116 AD2d 694 (2d Dept 1986).
There is no dispute about the formation of the Agreements, but Trafigura alleges that although it performed its obligations, it was damaged as a result of SCT's breach by not producing and delivering the Fuel Oil on the dates specified under the Finished Product Agreement.
SCT argues that, by accepting and paying for the Fuel Oil, Trafigura is precluded from suing for late delivery and nonconformity to the contract specifications. In support of this argument, SCT cites paragraph nine, the "Payment" provision of the Finished Product Agreement, which pertains to how payments were to be made and effected. Specifically, paragraph nine provides that "PAYMENT SHALL BE EFFECTED WITH FULL VALUE OF 10 CALENDAR DAYS AFTER PRESENTATION OF: ... (B) COPY OF INDEPENDENT INSPECTOR'S QUALITY/QUANTITY REPORTS AT BORCO ... ." The "Payment" provision contemplates inspecting the quality and quantity of the Fuel Oil in connection with Trafigura's acceptance of it, not the timing of the delivery. The Trafigura's acceptance of the quality and quantity of the Fuel Oil and payment does not mean it relinquished its right to damages resulting from SCT's late deliveries. Nothing in that provision relates to late deliveries of Fuel Oil or waiver of the right to object to late deliveries.
SCT also argues that Trafigura is precluded from suing for nonconformity to the contract specifications, because it did not properly object to the quality of the Fuel Oil, pursuant to the "inspection procedures" outlined in the Finished Product Agreement. In its reply papers, Trafigura states that "[n]o claim is asserted, and no damages are sought, by reason of the failure of any goods to meet contract specifications." Rather, Trafigura states that "the only damages sought (including hedging losses) are in respect of the lateness of SCT's deliveries." Thus, argument regarding Trafigura's alleged improper objection to the quality of the Fuel Oil is irrelevant.
SCT claims that Trafigura failed to follow the contractual procedures "to deal with questions of late delivery ...", but does not identify the contractual procedures that Trafigura allegedly failed to follow nor does it explain how Trafigura failed to follow those procedures. SCT argues that paragraph seven of the Finished Product Agreement provides a "mechanism" and a "remedy" to "deal with any alleged delayed delivery issues." However, paragraph seven deals with allocating costs for storing materials at the blending facility, not damages for late deliveries.
Nor has SCT shown that the first cause of action is barred by UCC § 2-606. That [*4]provision deals with the acceptance of goods, and, citing UCC § 6-602, the rejection of nonconforming goods. Here, Trafigura concedes that it did not reject the Fuel Oil, but rather, claims that it accepted the Fuel Oil as "nonconforming tender under the Finished Product Agreement, and "objected to SCT's delivery delays". Neither UCC §§ 2-606 or 2-602 deals with Trafigura's claim of nonconforming tender due to SCT's alleged late deliveries. Under New York law, "[t]hough a buyer of a commodity may accept delivery of the commodity after the stipulated date, he may still retain his right of action for damages caused by delay," Beacon Plastic & Metal Prods., Inc. v Corn Prods. Co., 57 Misc 2d 634, 637 (App Term, 1st Dept 1968), citing Richard v American Union Bank, 253 NY 166 (1930). Thus, Trafigura's first cause of action remains.
Second Cause of Action - Breach of Contract
SCT moves to dismiss the second cause of action for breach of the allegedly orally modified Finished Product Agreement, because the Finished Product Agreement contained a no-oral-modification clause, and because the parties have not satisfied the statutory requirements for oral modification. The second cause of action alleges that Trafigura orally agreed to accept SCT's late Fuel Oil deliveries and roll over its hedging contracts in exchange for SCT agreeing to be liable for the resulting damages. The Finished Product Agreement contains a no-oral-modification clause but Trafigura argues that partial performance waived the no-oral-modification clause.
Generally, New York law upholds and enforces contracts that contain no-oral-modification clauses. GOL § 15-301; UCC § 2-209. However, "apart from statute, a contract once made can be unmade, and a contractual prohibition against oral modification may itself be waived." Rose v Spa Realty Assoc., 42 NY2d 338 (1977). "When a written contract ... provides that it can be modified only by a signed writing, an oral modification of that agreement is not enforceable unless the oral modification is fully executed or there has been a partial performance 'unequivocally referable' to the oral modification [citations omitted]." F. Garofalo Elec. Co., Inc. v New York Univ., 270 AD2d 76, 80 (1st Dept 2000), citing General Obligations Law § 15-301 (1) and Rose, 42 NY2d 338, supra.
Since the delivery and acceptance of Fuel Oil after October 31, 1999 were contrary to the terms of the Finished Product Agreement, Trafigura's alleged conduct in accepting late deliveries of Fuel Oil, and rolling over hedging contracts to a later date when SCT could deliver the Fuel Oil, is not referable to the original Finished Product Agreement. Rather, Trafigura's conduct, as alleged in the amended complaint, constitutes "a partial performance 'unequivocally referable' to the oral modification, F. Garofalo Elec. Co., Inc., 270 AD2d 76, supra, because it is "explainable only with reference to the oral agreement," Anostario v Vicinanzo, 59 NY2d 662, 664 (1983). The amended complaint avers that SCT breached the oral agreement by failing and refusing to pay Trafigura for its losses, and that, as a result, Trafigura suffered damages.
SCT argues that the alleged oral modification is too vague to be enforced by the court, because the amended complaint fails to define the terms of the hedging agreements or the payment terms that SCT agreed to accept. Cobble Hill Nursing Home, Inc. v Henry and Warren Corp., 74 NY2d 475, 482 (1989). There is no indication in the amended complaint that payment terms under the Finished Product Agreement were orally modified, or that "the parties did not intend to conclude a binding agreement." Cobble Hill Nursing Home, Inc., 74 NY2d at 482. [*5]That the parties' expression of their agreement may have been imperfect "does not necessarily indicate that the parties ... did not intend to form a binding contract." Matter of 166 Mamaroneck Ave. Corp., 78 NY2d at 91. Therefore, the agreement is neither indefinite, nor too vague to be enforced by the court. Cobble Hill Nursing Home, Inc., 74 NY2d at 483.
SCT's also argues that it received no benefit under the modified Finished Product Agreement, thereby nullifying Trafigura's partial performance argument, but SCT received the benefit of the sale of the Fuel Oil and the benefit of extended delivery dates. SCT also received the benefit of Trafigura rolling over the hedging contracts to dates when SCT could deliver the Fuel Oil, enabling Trafigura to partially offset hedging losses at the time of delivery.
SCT contends that "Trafigura's decision to enter into hedging contracts may be explained by factors outside any alleged oral agreement with SCT for SCT to be bound if the hedging contracts were invoked," but does not identify these factors, or to explain how they show that Trafigura's decision to enter into hedging contracts was not referable to the alleged oral modification.
SCT also argues that the Agreements provided for specific remedies available to Trafigura in the event of default, including paragraph seven of the Finished Product Agreement, and paragraph ten of the Blendstock Agreement. However, neither paragraph provides for, nor restricts, Trafigura's remedies in connection with SCT's failure to deliver the Fuel Oil in a timely fashion. Thus, Trafigura's second cause of action for breach of the Finished Product Agreement, as allegedly amended by the oral modification, remains at this time.
Third Cause of Action - Economic Duress
SCT moves to dismiss the third cause of action for economic duress, arguing that Trafigura has other remedies available, thereby precluding recovery in quasi contract or tort.
Economic duress exists when the plaintiff "establishes that it was compelled to agree to the contract terms because of a wrongful threat by the other party which precluded the exercise of its free will," permitting the plaintiff to void the contract and recover damages. 805 Third Ave. Co. v M.W. Realty Assoc., 58 NY2d 447, 451 (1983). "It must also appear that the threatened party could not obtain the goods from another source of supply and that the ordinary remedy of an action for breach of contract would not be adequate." Austin Instrument, Inc. v Loral Corp., 29 NY2d 124, 130-31 (1971).
Trafigura's economic duress cause of action alleges that Trafigura agreed to accept late Fuel Oil deliveries and roll over its hedging contracts as a result of SCT's alleged threat to cease production and delivery of Fuel Oil. However, the parties do not dispute the existence of the written Finished Product Agreement, which expressly required Fuel Oil deliveries to be made between June 1 and October 31, 1999. The amended complaint alleges that SCT delivered the Fuel Oil after October 31, 1999, thereby breaching that agreement, and, consequently, Trafigura seeks to hold SCT liable for "all damages" resulting from the breach. Thus, Trafigura has an adequate remedy in its breach of contract cause of action. Accordingly, SCT's motion to dismiss the economic duress cause of action is granted.
Fourth Cause of Action - Promissory Estoppel
SCT claims that Trafigura's promissory estoppel cause of action should be dismissed, arguing that Trafigura improperly attempts to create a tort from a breach of contract.
"To establish a viable cause of action sounding in promissory estoppel, a plaintiff must [*6]allege (1) a clear and unambiguous promise, (2) reasonable and foreseeable reliance by the party to whom the promise is made, and (3) an injury sustained in reliance on the promise," Gurreri v Associates Ins. Co., 248 AD2d 356, 357 (2d Dept 1998). The existence of an express agreement "ordinarily precludes recovery in quasi contract for events arising out of the same subject matter." Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382, 388 (1987); Gebbia v Toronto-Dominion Bank, 306 AD2d 37 (1st Dept 2003).
Trafigura's promissory estoppel cause of action alleges that SCT promised to be liable for damages resulting from late deliveries, that Trafigura relied upon this promise by accepting late deliveries and rolling over hedging contracts, and that, as a result, Trafigura suffered damages. That claim duplicates the second cause of action for breach of the modified contract and is also dismissed. Clark-Fitzpatrick, Inc., 70 NY2d 382, supra; Gebbia, 306 AD2d 37, supra.
Accordingly, it is hereby
ORDERED that the motion to dismiss is granted to the extent that the third and fourth causes of action are dismissed, and the motion is otherwise denied; and it is further
ORDERED that defendant is directed to serve an answer to the amended complaint within 20 days after service of a copy of this order.
Preliminary Conference shall take place on September 21, 2004 in Room 208 at 9:30 a.m.
Dated: August 23, 2004
ENTER:
Helen E. Freedman, J.S.C.
Appearances
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