Gerard v Cahill

[*1] Gerard v Cahill 2008 NY Slip Op 51716(U) [20 Misc 3d 1133(A)] Decided on July 16, 2008 Supreme Court, Suffolk County Whelan, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 July 16, 2008
Supreme Court, Suffolk County

Nelson Gerard and BUCKSKILL FARM, LLC, Plaintiffs,

against

Catherine Cahill, as Executrix of the Estate of MARVIN HYMAN, JOHN DOE, MARY MOE and ROE COMPANY, Defendants.



26224-05



MEYER, SUOZZI, ENGLISH & KLEIN

Attys. For Plaintiffs

1505 Kellum Pl.

Mineola, NY 11501

ESSEKS, HEFTER & ANGEL

Attys. For Def. Cahill

P.O. Box 279

Riverhead, NY 11901

Thomas F. Whelan, J.

ORDERED that this motion (#

005) by plaintiffs seeking an Order pursuant to CPLR 602, consolidating the above action with an action entitled Nelson Gerard and Buckskill Farm, LLC v Catherine Cahill, bearing Suffolk County Index No. 07-37856 and pursuant to CPLR 510, granting a change of venue to Nassau County, among other things, is denied as moot in view of this decision; and it is further

ORDERED that this cross motion (#

006) by defendant, Catherine Cahill, for an Order pursuant to CPLR 3212, granting said defendant summary judgment dismissing the action upon the grounds that there are no issues of fact, is granted and the amended complaint is dismissed.

In November, 2005, the plaintiffs commenced this action against Marvin Hyman (hereinafter "Hyman"), now deceased, to recover, among other things, monies purportedly due under the terms of the June 1, 2003 Operating Agreement (hereinafter "Operating Agreement") of the plaintiff, Buckskill Farm, LLC (hereinafter "LLC"), as purportedly amended in 2004, or by reason of Hyman's breach thereof or tortious conduct in connection therewith. On December 2, 2005, after a lengthy hearing, this Court denied the plaintiffs' motion for preliminary injunctive relief. Shortly thereafter, the plaintiffs served an amended complaint pursuant to CPLR 3025. Following the death of defendant Hyman in December of 2005, defendant, Catherine Cahill (hereinafter "Cahill), in her capacity as executrix of the Estate of Marvin Hyman, was substituted as a party defendant in the place of her late husband.

In December, 2007, the plaintiffs commenced a related action against Cahill in her individual capacity, seeking recovery in tort of money damages. That action is now pending in the IAS inventory of this Court and is the subject, in part, of the current motion-in-chief (#

005) by the plaintiffs.

In June, 2003, the plaintiff, Nelson Gerard (hereinafter "Gerard"), and the deceased defendant Hyman founded the plaintiff LLC and executed the Operating Agreement. The purpose of the LLC was the purchase and development of a 9.6 acre tract of land situated in East Hampton, New York, known as Buckskill Farm. Gerard and Hyman were the sole members and managers of the LLC and each were required to act in concert with one another. Capital contributions, which included cash, property and services, were fixed at $2,000,000.00 for Gerard and $350,000.00 for Hyman. Gerard satisfied his capital contribution by posting $2,000,000.00 towards the purchase price of Buckskill Farm at the closing of title and Hyman was credited with $117,900.00 towards his capital contribution requirements at the time of the execution of the Operating Agreement.

Reflective of the disparity in the capital contribution requirements of Gerard and Hyman was the "distribution" portion of the Operating Agreement, which is set forth as Exhibit "C" thereof. Pursuant thereto, a distribution of lots to Gerard and Hyman or a buyout of Hyman's interest in the LLC was triggered by the filing of a subdivision map in the Office of the Suffolk [*2]County Clerk. Since the lot yield of the subdivision to be filed was unknown to both Gerard and Hyman at the time of the execution of the Operating Agreement, the distribution clause provided the following possible scenarios:

(a)A map yielding eight (8) lots plus a reserve area shall be divided five (5) lots to NELSON GERARD and an undivided one half interest n the reserve area. Three (3) lots plus an undivided one half interest in the reserve area to MARVIN HYMAN.

(b)A map yielding seven (7) lots plus a reserve area shall be divided five (5) lots to NELSON GERARD, two (2) lots to MARVIN HYMAN, and each shall have an undivided one half interest in the reserve area.

(c)A map yielding six (6) lots plus a reserve area shall be divided five (5) lots to NELSON GERARD, one (1) lot to MARVIN HYMAN, and each shall have an undivided one half interest in the reserve area.

(d)In a map yielding five (5) or four (4) lots plus a reserve area, all lots shall be distributed to NELSON GERARD. MARVIN HYMAN shall receive the reserve area.

(e)Should a map yield three (3) lots or less, NELSON GERARD shall have the option to have MARVIN HYMAN purchase his interest in the company for the amount of NELSON GERARD'S capital contribution of $2,000,000. MARVIN HYMAN shall have one hundred twenty (120) days to purchase NELSON GERARD's interest. Should NELSON GERARD not exercise his option as stated above, all lots on the map shall be distributed to NELSON GERARD. MARVIN HYMAN shall receive the reserve area.

Article VIII, ¶ 3, of the Operating Agreement sets forth an expansive "Complete Agreement" and "No Oral Modification" clause. The terms of said clause are as follows:

3.This Agreement contains the entire agreement among the members with respect to the operation of this Company, and supersedes each and every course of conduct previously pursued or consented to and each and every oral agreement and representation previously made by the members with respect thereto, whether or not relied or acted upon. No amendment of this Agreement shall be effective unless made in writing duly executed by all members and specifically referring to each provision of this agreement being amended. No course of conduct or performance subsequently pursued or acquiesced in and no oral agreement or representation subsequently made, by the members, whether or not relief or acted upon, shall amend this Agreement or impair or otherwise affect any members' obligations, rights or remedies pursuant to this Agreement. [*3]

In accordance with the terms of the Operating Agreement, Hyman undertook responsibility for the preparation and filing of the subdivision map. On February 20, 2004, Hyman corresponded with Gerard advising him that a map of eight lots plus an agricultural reserve area had been submitted to the Town of East Hampton (hereinafter "Town") for preliminary approval. Said subdivision map depicted an agricultural reserve area of 104,783 sq. ft. and eight individual residential lots sized between 31,409 sq. ft. and 50,186 sq. ft.

Hyman further advised Gerard that the Town had expressed an interest in purchasing the development rights to four of the then proposed eight lots and the agricultural reserve area. Continuing, Hyman advised that "this would leave us with four (4) lots in the wooded southerly part of the property all now abutting the open space which the Town will be acquiring."

In April, 2004, Hyman followed up this February 20, 2004 correspondence to Gerard with the two proposed draft amendments to the distribution clause of the Operating Agreement (Exhibit C). These drafts provided for a contingent distribution of the four, residential, southern lots and the proceeds from the sale of the four northern lots to be merged in to the agricultural reserve area to each member of the LLC in the event the Town paid in excess of 2 million dollars for its acquisition. Gerard, however, rejected the distributions proposed by Hyman.

In August, 2004, the Town finally offered 1.9 million dollars for the purchase in fee of the four northern lots plus the agricultural reserve area, which Hyman and Gerard agreed to sell at that price on August 12, 2004. However, the plaintiffs contend that Gerard's consent to said purchase by the Town was conditioned upon Hyman's sale of his interest in the LLC to Gerard for $950,000.00. The plaintiffs further allege that Hyman orally agreed to such condition. Nevertheless, neither Gerard nor his counsel pursued Hyman's written execution of this buyout agreement, which was proposed in a writing prepared by Gerard's personal attorney on August 31, 2004, because both Gerard and his counsel learned on September 1, 2004 that they were under the mistaken belief that the 1.9 million dollars offered by the Town was limited to its purchase of development rights to the four lots and agricultural reserve area rather than to its purchase of said lands in fee. Gerard and his counsel were made aware of the intentions of the Town to purchase in fee of the expanded agricultural reserve area by a fax sent by Hyman to Gerard on September 1, 2004, to which there was attached an August 25, 2004 letter from the Town in which its offer to purchase said lands in fee for 1.9 million dollars was detailed (see Ex.9 attached to Affirm. in Opp. By Jeffrey Stark, dated 4/30/08; see also, transcript of Gerard's deposition testimony on 10/17/07, pp. 55-57).

Not disputed herein is that on September 30, 2004, Hyman faxed to Gerard and his counsel a proposed contract for the sale in fee of the four lots plus the agricultural reserve area by the LLC to the Town for 1.9 million dollars. Attached thereto was a proposed subdivision map which clearly and accurately depicted the premises to be sold as encompassing a merger of the four northern lots into the agricultural reserve area, thereby expanding its square foot acreage from its original area of 104,783 sq. ft. to 297,056 sq. ft. It also depicted the subdivision of the four southern lots in the wooded area from the expanded reserve area, which Hyman first described in [*4]his February 20, 2004 correspondence to Gerard.

On October 17, 2004, Hyman executed the contract of sale on behalf of the LLC with the Town as purchaser. The plaintiffs claim that such execution by Hyman violated the terms of the Operating Agreement because Gerard had not consented to the terms of the contract as he had been unable to reach his personal attorney. However, on October 20, 2004, Gerard ratified Hyman's execution of the contract. The plaintiffs allege that such ratification issued only after Hyman orally agreed to a buyout of his interest in the LLC by Gerard for $850,000.00 or title to one of the four southern lots.

Over the next 10 months, Gerard and his counsel sent Hyman several draft proposals for the buyout of Hyman's interest in the LLC but none were executed by Hyman. Meanwhile, Hyman filed an application for approval of the subdivision contemplated by the October 17, 2004 contract with the Town. On August 10, 2005, the Town finally approved the subdivision map. On September 21, 2005, Hyman filed the subdivision map in the Office of the County Clerk, which triggered the distribution of lots under the terms of the distribution clause contained in Exhibit C of the Operating Agreement. Said filing also foreclosed Gerard's purchase of Hyman's interest in the LLC because the lot yield under the filed subdivision map was greater than three.

On September 28, 2005, Hyman closed the sale of the agricultural reserve area, expanded by the merger of the four northern lots, to the Town as contemplated by the contract of sale. Hyman deposited the net proceeds from the sale into an account belonging to the LLC. He later withdrew $1,895,000.00 from said account and deposited same into a joint account titled in the name of himself and his wife, defendant, Catherine Cahill.

By the amended complaint served and filed herein, the LLC plaintiff demands extensive declaratory relief pursuant to CPLR 3001 culminating in a judicial declaration that Hyman has no further right or interest in the LLC and that he (now his estate) "owes the LLC $1,050,000 plus the costs of purchase and development, less the capital contributions made by Hyman to the LLC." In the remaining causes of action asserted by the LLC, it demands treble damages by reason of the purportedly fraudulent conduct engaged in by Hyman by which the sale of the enlarged agricultural reserve area was closed and equitable relief. Such equitable relief includes an accounting by Hyman, the imposition of a constructive trust over the monies derived from the sale and mandatory injunctive relief aimed at recovering some or all of the 1.9 million dollars purchase price collected by Hyman. Gerard's sole demand for relief is the foreclosure of a security interest in Hyman's membership interest in the LLC, which was given by Hyman to Gerard to secure Hyman's performance of the steps necessary to obtain the filing of the subdivision map.

Now before the Court is the motion (#

005) by the plaintiffs for an Order (1) consolidating with this action the second action commenced by the plaintiffs against defendant, Cahill, in her individual capacity; (2) changing the venue of the consolidated action to Nassau County; and (3) transferring or granting plaintiffs' renewed motion to compel defendant Cahill to respond to certain deposition questions at a second deposition to be [*5]ordered by the Court. Defendant Cahill opposes the plaintiffs' motion and cross moves (#

006) for an award of summary judgment dismissing the plaintiffs' amended complaint.

The Court first considers the defendant Cahill's cross motion (#

006) for summary judgment dismissing the plaintiffs' amended complaint. For the reasons set forth below, the cross motion is granted.

Section 15-301 of the General Obligations Law (hereinafter "GOL") is aimed at the enforcement of "no oral modification" clauses in contracts. Pursuant thereto, written agreements, which expressly proscribe oral modifications, cannot be changed by oral executory agreements (see GOL § 15-301[1]). Although "no oral modification" clauses are entitled to great deference (see Calica v Reisman, Peirez and Reisman, 296 AD2d 367, 744 NYS2d 495 [2d Dept 2002]), they are not impervious. Full performance of an oral modification may constitute a waiver of the no oral modification clause in a contract, while part performance of the modification in a manner which is unequivocally referable to an oral modification assented to by both parties, may render an oral modification enforceable since GOL § 15-301(1) only prohibits the enforcement of oral executory agreements. The courts have also enforced subsequent oral modifications notwithstanding that the contract between the parties prohibits such oral modifications under the doctrine of equitable estoppel (see Rose v Spa Realty Assoc., 42 NY2d 338, 397 NYS2d 922 [1977]).

Here, Article VIII of the Operating Agreement at issue contains a very extensive "no oral modification" clause. It not only prohibits subsequent oral amendments of the terms of said Operating Agreement, but it also prohibits amendments by "a course of conduct [and] performance subsequently pursued or acquiesced in." It further provides that all oral agreements or representations subsequently made by the members "whether or not relied or acted upon" shall not effect an enforceable modification of the terms of the Operating Agreement. These clear and unambiguous terms warrant a finding that the parties intended to interdict any and all subsequent modifications unless they were reduced to a writing signed by the parties and to interdict application of the doctrine of part performance, which the courts sometime apply to enforce a partially performed oral modification even though the contract at issue contains a "no oral modification" clause.

Notwithstanding the clear and unambiguous terms of the "no oral modification" clause set forth in Article VIII of the Operating Agreement, the plaintiffs contend that an enforceable oral modification of the distribution clause contained in Exhibit C of said Agreement was entered into by plaintiff Gerard and deceased defendant Hyman. These contentions are premised upon the following claims: (1) there was a writing sufficient to qualify as a written modification of the distribution clause whereby Hyman agreed to accept $850,000.00 or one of the four lots; (2) that there was a full or partial performance of the oral modification of the distribution clause pursuant to which Hyman agreed to accept a buy out of his interest in the LLC for $850,000.00; (3) that by reason of Hyman's engagement in fraudulent and deceptive conduct, his estate should be estopped from enforcing the "no oral modification" clause set forth in Article VIII of the Operating Agreement. [*6]

Rejected as unmeritorious are the plaintiffs' claims that the October 29, 2004 correspondence by Hyman to Gerard's personal attorney, Goldstein, satisfied the writing requirements of Article VIII of the Operating Agreement and/or GOL § 15-301(1). Although signed by Hyman, the October 29, 2004 letter does not satisfy the writing requirements imposed by Article VIII of the Operating Agreement in as much as it is not signed by both members of the LLC and it fails to specifically refer to any provisions of the Operating Agreement, which were purportedly amended thereby. Under these circumstances, the court finds that the October 29, 2004 letter from Hyman to Goldstein does not comport with the unambiguous terms imposed by Article VIII of the Operating Agreement and that the purported modification thereof is not enforceable (see In the Matter of Irving O. Faber, PLLC v Kamalian, 16 AD3d 506, 791 NYS2d 609 [2d Dept 2005]; Elmsford Sheet Metal Workers, Inc. v Shasta Indus., Inc., 103 AD2d 764, 477 NYS2d 391 [2d Dept 1984]; cf. Karel v Clark, 129 AD2d 773, 514 NYS2d 766 [2d Dept 1987]).

Nor, did Hyman's October 29, 29, 2004 letter satisfy the writing requirements imposed by GOL § 15-301(1). The October 29, 2004 letter is nothing more than an acknowledgment by Hyman of Gerard's offer to purchase Hyman's interest in the LLC for $850,000.00 or for a conveyance to Hyman of one of the four southern lots depicted on the subdivision map attached to the contract of sale with the Town and filed with the County Clerk. While Hyman acknowledged Gerard's purchase offer in his October 29, 2004 letter to attorney Goldstein, Hyman therein advised that further action was required and that the matter would be revisited in the future. The letter was not an agreement to alter the original agreement, which is a requirement for writings within the purview of GOL § 15-301(1) (see Omega Indus., Inc. v Chemical Bank, 226 AD2d 512, 641 NYS2d 327 [2d Dept 1996]; Bakhshandeh v. American Cyanamid Co., 8 AD2d 35, 185 NYS2d 635 [1st Dept 1959] affd 8 NY2d 981, 204 NYS2d 881 [1960]; Elmsford Sheet Metal Workers, Inc. v Shaster Indus., Inc., 103 AD2d 764, supra ). Plaintiffs' claims that the October 29, 2004 correspondence from Hyman to Goldstein satisfied the writing requirements imposed by the Operating Agreement and/or the relevant provisions of GOL § 15-301(1) are without evidentiary support and are thus insufficient to raise any genuine questions of fact regarding the existence of an enforceable written modification of the Operating Agreement at issue herein.

Equally unavailing are the plaintiffs' claims that the purported oral modification agreement was fully performed and its enforcement is not precluded by the provisions of GOL § 15-301(1). Clearly, there was no performance on the part of Gerard since he never paid Hyman the $850,000.00 purportedly offered for his interest in LLC. Nor was a lot conveyed or distributed to Hyman prior or subsequent to the filing of the subdivision map with the County Clerk.

Similarly unavailing are the plaintiffs' claims that the purported oral modification of the distribution clause of the Operating Agreement is enforceable under the doctrine of part performance. It is well settled that to overcome the strictures of GOL § 15-301, the alleged partial performance must be unequivocally referable to said oral modification and must evidence an indisputable material departure from the written agreement (see Rose v Spa Realty Assoc., 42 NY2d 338, supra ; Matter of Irving O. Farber, PLLC v Kamalian, 16 AD3d 506, supra ). This [*7]standard thus requires that the action taken be "unintelligible, or at least extraordinary, explainable only with reference to the oral agreement" (Anostario v Vicinanzo, 59 NY2d 662, 463 NYS2d 409 [1983]). Where a subsequent oral agreement provides terms and/or conditions not covered nor contemplated by the original agreement, acts constituting partial performance of said oral agreement may be considered unequivocally referable to the oral agreement thus rendering it enforceable notwithstanding the inclusion of a "no oral modification" clause in the original agreement (see Rose v Spa Realty Assoc., 42 NY2d 338, supra ). Where, however, the part performance is explainable with reference to the original agreement or as preparatory steps taken with a view towards consummation of an agreement in the future, such part performance will not be found to be unequivocally referable to an oral modification (see Anostario v Vicinanzo, 59 NY2d 662, supra ).

For part performance to take an alleged oral agreement outside the provisions of GOL § 15-301(1), the acts of performance must be undertaken by the party asserting the validity of the alleged oral agreement rather than by the party who contests it (see Thompson v Thompson, 294 AD2d 943, 741 NYS2d 641 [4th Dept 2002]; Messner, Vetre, Berger et al v Aegis Group, PLLC, 93 NY2d 229, 689 NYS2d 674 [1999]). While some case authorities have held that inaction on the part of the party seeking enforcement of the alleged oral modification may qualify as part performance (Ibid at 678; see also Greenberg v Frey, 190 AD2d 546, 593 NYS2d 217 [1st Dept 1993]), a failure to act may only be considered unequivocally referable to the existence of the alleged oral modification where there is due proof that the inaction related to the satisfaction of one or more of the terms of the oral modification agreement and that the party asserting the validity of the oral modification detrimentally relied thereon (see Messner, Vetre, Berger et al v Aegis Group, PLLC, 93 NY2d 229, supra ; see also Lamotte v National Patent Dev. Corp., 1996 WL 492998 [SDNY 1996]).

Upon the application of the foregoing principles to the instant case, the Court finds that the record is devoid of sufficient proof in admissible form which tends to establish triable issues of fact regarding the enforceability of the alleged oral agreement under the doctrine of part performance. None of the asserted acts or of performance are unequivocally referable to the alleged oral agreement. Nor is there sufficient proof of inaction related to the satisfaction of one or more terms of the oral agreement and detrimental reliance thereon on the part of the plaintiffs. Rather, the proof adduced established, prima facie, that the conduct of both parties was consistent and wholly compatible with the terms of the Operating Agreement as written and executed by Gerard and Hyman in 2003.

By its terms, the Operating Agreement contemplated and provided for the filing of an approved subdivision map depicting only four buildable lots and an agricultural reserve area which was expanded by the diminution of residential buildable lots and for the distribution of said lots and the reserve area to Hyman and Gerard upon the filing of said subdivision map with Suffolk County Clerk. In addition, the Operating Agreement contemplated and provided for a buyout of Hyman's interest in the LLC by Gerard in the event that the lot yield on the filed subdivision map was three or fewer. Under these circumstances, there is no merit to the plaintiffs' claims that the alleged oral [*8]agreement struck by Gerard and Hyman in October of 2004 is potentially enforceable under the doctrine of part performance because the Operating Agreement neither contemplated nor provided for the sale of the reserve area to the Town. The triggering event for the distribution of lots and/or Gerard's buyout of Hyman's interest in the LLC was the filing of the subdivision map with the County Clerk, which occurred on September 21, 2005.

Similarly without merit is the plaintiffs' second cause of action for recovery of damages by reason of Hyman's allegedly fraudulent conduct. It is well established that for a plaintiff to recover damages for fraud, the fraud alleged may not relate to a purported breach of a contract or other agreement between the parties (see Kaufman v Torkan, 51 AD3d 977, 859 NYS2d 253 [2d Dept 2008]). Where, as here, the alleged misrepresentation is neither collateral nor extraneous to the terms of the parties' agreement, a demand for damages predicated on fraud is not cognizable (see Americana Petroleum Corp. v Northville Indus. Corp., 200 AD2d 646, 686 NYS2d 906 [2d Dept 1994]). The plaintiffs' second cause of action for recovery of damages due to fraud is thus dismissed.

The plaintiffs nonetheless claim in their opposing papers that "the amended verified complaint pleads all of the facts necessary to make out what is, essentially, a fraud claim seeking equitable estoppel." In support of this position, the plaintiffs rely upon the holding of the Court of Appeals in Rose v Spa Realty Assoc. (42 NYS2d 338, supra ), a case in which the plaintiff sought specific performance of a subsequent oral agreement to modify the terms of the parties' written agreement for the sale of land. However, the plaintiffs' reliance on Rose v Spa Realty Assoc. is misplaced.

In the opinion issued in Rose v Spa Assoc., the Court found that the plaintiffs were entitled to specific performance of the alleged oral modification of the parties' real estate sales contract because they demonstrated significant and justifiable reliance constituting partial performance of the modification that was unequivocally referable thereto and which was not otherwise compatible with the agreement as written (see Rose v Spa Realty Assoc., 42 NY2d 338 at 344, supra ; see also Matter of Irving O. Faber v Kamalian, 16 AD3d 506, supra ). Here, the conduct of the parties relied upon by the plaintiffs did not evince an indisputable mutual departure from the written Operating Agreement or the plaintiffs' justifiable reliance on conduct, which was unequivocally referable to the purported oral modification and incompatible within the terms of the Operating Agreement (see Lake Anne Realty Corp. v Lake Anne at Monroe Assoc., LCC, 29 AD3d 866, 814 NYS2d 533 [2d Dept 2006]; Matter o Irving O. Faber v Kamalian, 16 AD3d 506, supra ). Consequently, the defendant is awarded summary judgment dismissing the plaintiffs' first cause of action for declaratory relief in the nature of a judicial directive compelling specific performance of the alleged oral agreement. To the extent that it may read as demanding the imposition of the equitable remedy of equitable estoppel, the plaintiffs' second cause of action (fraud) is likewise dismissed.

The remaining causes of action set forth by the LLC in its amended complaint are wholly dependent upon the success of its claims for enforcement of the alleged oral modification of the [*9]Operating Agreement or other enforceable promise on the part of Hyman (see CPLR 6301 et seq; see also Williams v Eason, 49 AD3d 866, 854 NYS2d 477 [2d Dept 2008]; Alderman v Eagle, 41 AD2d 641, 340 NYS2d 716 [2d Dept 1973]). In light of the Court's rejection of said claims, the defendant is awarded summary judgment dismissing the remaining causes of action asserted by the LLC against the defendant.

Also dismissed is the seventh cause of action asserted by Gerard for a judgment foreclosing the security interest signed by Hyman in his interest in the LLC. The record is devoid of any evidence tending to establish any default on the part of Hyman in satisfying the obligations secured under the Operating Agreement which would entitle Gerard to a foreclosure of said security interest.

Accordingly, the defendant is awarded summary judgment dismissing the amended complaint served and filed herein. The plaintiffs' motion for consolidation, a change in venue and other relief is denied as moot. This constitutes the Order and decision of the Court.

DATED: ________________________________________________

Thomas F. Whelan, J.S.C.