Lawlor v Cablevision Sys. Corp.

[*1] Lawlor v Cablevision Sys. Corp. 2008 NY Slip Op 51849(U) [20 Misc 3d 1144(A)] Decided on September 8, 2008 Supreme Court, Nassau County Austin, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on September 8, 2008
Supreme Court, Nassau County

John Lawlor, Esq. on Behalf of Himself and all Others Similarly Situated, Plaintiff,

against

Cablevision Systems Corporation and CSC Holdings, Inc., Defendants.



12308-06



COUNSEL FOR PLAINTIFF

Sims, Moss, Kline & Davis, LLP

129 Third Street

Mineola, New York 11501

COUNSEL FOR DEFENDANT

Rivkin Radler, LLP

926 RexCorp.

Uniondale, New York 11556-0926

Leonard B. Austin, J.

Defendants Cablevision Systems Corporation and CSC Holdings, Inc., move pursuant to CPLR 3211 (a)(7) for an order dismissing the amended complaint.

BACKGROUND

In 2002, Plaintiff, John Lawlor ("Lawlor") an attorney engaged in the practice of law subscribed to "optimum online for business," a high speed internet service offered by Defendant, Cablevision Systems Corporation ("Cablevision"), and its wholly owned [*2]subsidiary, Defendant, CSC Holdings, Inc. ("CSC").

The "optimum online" business service was delivered to subscribers pursuant to a standard form contract entitled "Agreement for Optimum Online for Commercial Services" ("Agreement") a two-page document containing 34 separate paragraphs outlining the terms and conditions governing a subscriber's internet access. (Ex. C)

The agreement contains an introductory paragraph which informs the reader that, "CSC Holdings Inc. ( Cablevision') is pleased to provide Optimum Online high speed internet access for Commercial Service in accordance with these terms and conditions, which may be changed from time to time." (Id.)

Paragraph 13 of the Agreement states in part that, "[t]he Agreement and the Equipment supplied by Cablevision are not assignable or otherwise transferable by the Subscriber", while ¶ 10 provides that the, "Subscriber agrees to pay any local, state or federal taxes imposed or levied on or with respect to Optimum Online Commercial

Service or the Services, the Equipment or installation or service charges incurred with respect to same." (Id.)

Similarly, ¶ 3 provides, in part, that the "Subscriber agrees to pay the monthly rate and other fees, including applicable taxes, for Optimum Online Commercial Services established from time to time by Cablevision."

Paragraph 33 of the Agreement further states that "Cablevision may, in its sole discretion, change, modify, add or remove portions of this Agreement at any time." (Id.)

After Lawlor entered into his Agreement with the Defendants, Cablevision regularly sent him invoices which contained notations identifying and describing the charges contained in the bills, including charges for "Taxes and Fees".

Lawlor asserts that during the relevant subscription period, i.e., from 2002 until some point in 2005, other business subscribers and he paid fees and taxes amounting to some 3.7% of the invoiced sum, or about $4.40 per month.

According to Lawlor, the documents and materials he received allegedly identified the internet service provider as "Cablevision" or CSC. Further, he claims that the term "Cablevision" appeared on most, if not every, document he received in connection with his internet subscription.

At some point, however, Lawlor discovered that the internet service which he had purchased was not provided by Cablevision or CSC, but was actually supplied by an entirely different entity known as "Cablevision Lightpath, Inc" ("Lightpath") a wholly

owned subsidiary of CSC. The Defendants have confirmed that, in fact, Cablevision's optimum business internet service was supplied from its inception by Lightpath.

It is undisputed that Lightpath is a regulated, so-called "local telephone company" within the meaning of applicable New York law. Therefore, it is required to pay certain franchise taxes, surcharges and gross receipts taxes, as set forth in New York Tax Law §§ 184, 184-a, 186, 186-c.

These taxes were passed on to Cablevision's subscribers and listed on the billing invoices, which the Plaintiff paid as part of his monthly subscription fee. In contrast, Optimum's residential internet service is not provided by a regulated entity and, consequently, the "Taxes and Fees" line was omitted from the monthly invoices sent to residential customers. [*3]

Thereafter, in April 2005, Cablevision is alleged to have "changed the way Optimum Online Service was to be delivered to business customers" by providing internet access through a new and distinct entity; to wit: CSC Optimum Holdings, LLC, which is also a wholly owned subsidiary of CSC.

However, since CSC Holdings was not a regulated, "local telephone company," it was not subject to the state taxes previously paid by Lightpath and, henceforth, the "Taxes and Fees" line contained on the billing invoices sent to the Plaintiff was removed.

Lawlor further claims that: (1) Cablevision expressly represented to him that the internet service in question would be provided by CSC, which is also defined interchangeably in the Agreement as "Cablevision"; (2) the Defendants failed to apprise him that the internet service was actually provided by Lightpath, as opposed to CSC or Cablevision; and (3) he was never informed that Lightpath was a regulated local telephone company subject to franchise taxes and/or gross receipts taxes.

Notably, the Plaintiff alleges that neither Cablevision nor CSC was a "regulated telephone company" and thus neither was or would have been subject to State taxes under New York Law as an internet service provider.

The Plaintiff asserts, on behalf of himself and the approximately 40,000 other similarly situated class members, that they were misled by the Defendants with respect to the identify of the internet provider since they were never informed that a regulated subsidiary of Cablevision subject to various state taxes and fees would actually be providing internet access, and that they would then be required to pay these taxes and fees.

Based on these and additional claims of wrongdoing, the Plaintiff commenced this action against Cablevision and CSC in 2006. The original complaint interposed three causes of action sounding in violation of General Business Law ("GBL") § 349, fraud and unjust enrichment.

In November 2006, the Defendants moved to dismiss the action pursuant to CPLR 3211(a)(7). That application was denied by order of this Court, dated March 22, 2007. In May 2007, the Defendants moved for reargument of its prior application to dismiss.

Upon granting reargument by order, dated August 7, 2007, this Court altered its prior ruling by concluding that the unjust enrichment and GBL § 349 causes of action were deficient. However, after liberally construing the Plaintiff's fraud claim (See, AG Capital Funding Partners, L.P. v. State Street Bank and Trust Co., 5 NY3d 582, 591 [2005]; and Leon v. Martinez, 84 NY2d 83, 87-88 [1994]), this Court found that Plaintiff stated a cause of action based upon a fraud in the inducement theory of recovery.

Thereafter, the Plaintiff served an "amended class action complaint" also containing three causes of action sounding in common law fraud/fraud in the inducement; breach of contract; and negligent misrepresentation and negligence.

The first cause of action labeled as one sounding in "common law fraud," avers, in sum, that Cablevision knowingly and willfully misrepresented and/or omitted material facts for the purpose of defrauding and inducing the Plaintiff to enter into the Agreement. That is, Plaintiff alleges that Cablevision allegedly represented that CSC would be the entity providing the service when, in fact, Lightpath was the service provider.

Lawlor further alleges that if he had known that Lightpath was actually the provider as opposed to the tax exempt entity, CSC he would "never have subscribed to and continued to subscribe to Cablevision for internet access service." (Amended Cmplt. ¶ 56). [*4]

The second cause of action sounds in breach of contract and asserts that, pursuant to the Agreement, Cablevision promised that it and/or CSC would provide the internet service, whereas, in fact, an undisclosed and regulated entity Lightpath actually supplied the internet access in question. Lawlor also alleges that by providing access through a regulated, undisclosed affiliate, Lightpath, the Defendants breached their implied duty of good faith and fair dealing, since their conduct resulted in the imposition of taxes which would not have been charged had they provided service through CSC.

The third cause of action avers that by virtue of the parties' "contractual relationship," the Defendants were duty-bound to impart correct information; that the Defendants failed to provide accurate information relative to the entity supplying the internet service; and they were also negligent since they did not employ the "simple expedient" of supplying internet service through an affiliate which was a tax exempt entity.

The Defendants now move to dismiss the amended complaint pursuant to CPLR 3211(a)(7).

DISCUSSION

"In considering a motion to dismiss pursuant to CPLR 3211(a)(7), the facts pleaded are presumed to be true, and the court must afford those allegations every favorable inference and determine only whether the facts as alleged fit within any cognizable legal theory." Sitar v. Sitar, 50 AD3d 667 (2nd Dept. 2008). See also,

Goshen v. Mutual Life Ins. Co. of New York, 98 NY2d 314, 326 (2002); and Leon v. Martinez, supra at 87-88.

On the other hand, "[w]hile the allegations in the complaint are to be accepted as true when considering a motion to dismiss[,] allegations consisting of bare legal conclusions as well as factual claims flatly contradicted by documentary evidence are not entitled to any such consideration'." Garber v. Board of Trustees of State Univ. of NY, 38 AD3d 833, 834 (2nd Dept. 2007), quoting from Maas v. Cornell Univ., 94 NY2d 87, 91 (1999); and Salvatore v. Kumar, 45 AD3d 560 (2nd Dept. 2007).

The essential elements of a cause of action sounding in fraud are a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury. Lama Holding Co. v. Smith Barney, 88 NY2d 413, 421 (1996); Channel Master Corp. v. Aluminum Ltd. Sales, 4 NY2d 403, 406-407 (1958); and Williams v. Eason, 49 AD3d 866 (2nd Dept. 2008).

Moreover, " [i]n order to plead a breach of contract cause of action, a complaint must allege the provisions of the contract upon which the claim is based," the consideration, the performance by plaintiffs and the basis of the alleged breach of the agreement by defendant." Furia v. Furia, 116 AD2d 694, 695 (2nd Dept. 1986). See, Morris v. 702 East Fifth Street HDFC, 46 AD3d 478, 479, 479 (1st Dept. 2007).See also, Peters v. Accurate Bldg. Inspectors Div. of Ubell Ent., Inc., 29 AD3d 972 (2nd Dept. 2006); Maldonado v. Olympia Mechanical Piping & Heating Corp., 8 AD3d 348 (2nd Dept. 2004); and Atkinson v. Mobil Oil Corp., 205 AD2d 719, 720 (2nd Dept. 1994).

The Court of Appeals has recently held that "[a] claim for negligent misrepresentation requires the plaintiff to demonstrate (1) the existence of a special or privity-like relationship imposing a duty on the defendant to impart correct information to the plaintiff; (2) that the [*5]information was incorrect; and (3) reasonable reliance on the information." J.A.O. Acquisition Corp. v. Stavitsky, 8 NY3d 144, 148 (2007). See also, Parrott v. Coopers & Lybrand, 95 NY2d 479, 484 (2000); and Murphy v. Kuhn, 90 NY2d 266, 270 (1997).

Notably, in the commercial context, "liability for negligent misrepresentation has been imposed only on those persons who possess unique or specialized expertise, or who are in a special position of confidence and trust with the injured party such that reliance on the negligent misrepresentation is justified." Kimmell v. Schaefer, 89 NY2d 257, 263-264(1996). See also, Fresh Direct, LLC v. Blue Martini Software, Inc., 7 AD3d 487, 489 (2nd Dept. 2004); Auble v. Doyle, 38 AD3d 1264, 1266 (4th Dept. 2007); Wight v. Selle, 27 AD3d 1065, 1066-1067 (4th Dept. 2004); H & R Project Assoc. v. City of Syracuse, 289 AD2d 967, 969 (4th Dept. 2001); and Fab Industries, Inc. v. BNY Financial Corp., 252 AD2d 367 (1st Dept. 1998).

"To establish a prima facie case of negligence, a plaintiff must demonstrate the existence of a duty owed by the defendant to the plaintiff, a breach of that duty, and that the breach was a proximate cause of the plaintiff's injury." Dabnis v. West Islip Public Library, 45 AD3d 802, 803 (2nd Dept. 2007). See also, Solan v. Great Neck Union Free School Dist., 43 AD3d 1035, 1036 (2nd Dept. 2007); and Pulka v. Edelman, 40 NY2d 781, 782-783 (1976). See gen'lly, In re New York City Asbestos Litigation, 5 NY3d 486, 493-494 (2005); and Kimmell v. Schaefer, 89 NY2d 257, 263-264 (1996).

Contrary to the Plaintiff's contentions, there is nothing in the Agreement which obligates or requires CSC to personally deliver the bargained-for internet service through any particular entity or in any specific fashion. The short, prefatory statement in the Agreement to the effect that CSC is "pleased to provide" commercial internet service, does not state that CSC or any specific entity for that matter would be the entity actually delivering access to the service.

Rather, and viewed in its proper contextual setting, the above-quoted generality merely advises the customer that CSC is the entity which would be offering the subscription service and with whom a customer would be dealing for the purposes of entering into that agreement. It does not state that CSC would, in a literal and personal sense, be actually supplying the internet access. In fact, the Agreement contains no reference at all to the technical provision of internet services, and does not, in any relevant way, prohibit or limit the manner in which the service could be delivered by the Defendants.

The parties' subsequent contractual relationship was consistent with the introduction's generic statement relative to Cablevision's offer of service, since Cablevision was and always continued to be the entity administering the subscription service, as well as the contracting party with whom the Plaintiff principally dealt in terms of remitting fees and/or requesting services otherwise incident to contract.

There is nothing in the specific terms of the Agreement which precludes the use of a subsidiary or affiliate for the purposes of actually delivering the service. Indeed, Plaintiff himself asserts in his amended complaint that the Defendants should have arranged for an "affiliate" which was tax exempt to deliver the requested service.

No less remote is the related assertion that the Agreement and/or other documents submitted support the further and additional inference that the Defendants, in some sense, promised or represented that the service would be delivered through a tax exempt entity.

The Court discerns nothing in the Agreement, or elsewhere, which represents, states or promises much less even mentions that internet access would be delivered through an entity exempt from taxes and fees. To the contrary, the Agreement contains several references to taxes [*6]and fees and expressly states that the subscriber would be required to pay those fees as part of his or her monthly access fee. Further, the fees were neither hidden nor disguised, but plainly listed on the monthly access statements, thereby affording the Plaintiff ample opportunity to look elsewhere for internet access in the event he found the sums charged to be objectionable or excessive.

Accordingly, the specific terms of the Agreement belie the assertion that a subscriber could assume or believe that the delivery of services would necessarily be offered without taxes and fees.

Lawlor has not meaningfully argued that the fees collected by the Defendants were not legally due and owing from Lightpath or that the Defendants in any sense personally profited from their decision to use that entity as the actual provider of internet service. Further, and apart from the issue of fees, there is no dispute that the Defendants actually delivered the basic, commercial internet access which was promised to the Plaintiff as part of the Agreement.

This conclusion, with respect to the absence of support for the Plaintiff's contract claims, is also determinative of the Plaintiff's intimately related fraud, negligence and negligent misrepresentation theories. Moreover, these claims are defective for the additional reason that they merely duplicate and rely upon the same linchpin theory of liability underlying the contract claim; to wit: that Defendants represented that a particular entity would personally provide the internet access, and that based thereon, it can be presumed that the Defendants also agreed or represented that the service would be supplied in a tax-free fashion.

Since "a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated," negligent misrepresentation and fraud claims do "not lie where the only fraud alleged arises from the breach of a contract." Clark-Fitzpatrick, Inc. v. Long Island Railroad Co.,70 NY2d 382, 389 (1987); Benedict Realty Co. v. City of New York, 45 AD3d 713, 714 (2nd Dept. 2007); and Clement v. Delaney Realty Corp., 45 AD3d 519 (2nd Dept. 2007). See also, River Glen

Assoc., Ltd. v. Merrill Lynch Credit Corp., 295 AD2d 274, 275 (1st Dept. 2002); and Scott v. KeyCorp., 247 AD2d 722, 725 (3rd Dept. 1998).

Of course, "[m]erely. . . employing language familiar to tort law, does not, without more, transform a simple breach of contract into a tort claim." Clark-Fitzpatrick, Inc. v. Long Island Railroad Co., supra at 390; and Clemens Realty, LLC v. New York City Dept. of Educ., 47 AD3d 666, 667 (2nd Dept. 2008).

The Court agrees that the Plaintiff has not shown that the Defendants' conduct violated any specific duty collateral to, or separate from, the contract itself. Sargent v. New York Daily News, L.P., 42 AD3d 491, 493 (2nd Dept. 2007). Rather, the Plaintiff has merely recast in varying permutations, and in "slightly different language, . . . the. . . contractual obligations asserted in the cause of action for breach of contract." Clark-Fitzpatrick, Inc. v. Long Island Railroad Co., supra at 390; and KSW Mechanical Services, Inc. v. American Protection Ins. Co., 40 AD3d 709, 710 (2nd Dept. 2007).

Also, and with respect to the negligent misrepresentation theory, Lawlor has failed to plead facts establishing the existence of a special or fiduciary relationship "a necessary element of the tort of negligent misrepresentation," particularly in a commercial context. Fab Industries, Inc. v. BNY Financial Corp., supra. See also, Kimmell v. Schaefer, supra at 264; and Wright v. Selle, supra at 1066-1067. [*7]

The inconclusive assertions by Plaintiff that, inter alia, the Defendants are large corporations or that they maintain a "separate tax department", do not establish the

existence of a special or fiduciary relationship. See gen'lly, Kimmell v. Schaefer, supra; and Wright v. Selle, supra.

Additionally, and absent a relevant contract or tort obligation, the Defendants do not otherwise owe the Plaintiff a "free floating duty" "unattached to the underlying legal document[s]" to administer or structure the contract in order to minimize the tax burden passed along to their subscribers. See, In re Cendant Corp. Securities Litigation, 181 Fed.Appx. 206, 211([3rd Cir. 2006), quoting from Dunlap v. State Farm Fire & Cas., Co., 878 AD2d 434, 441-442 (Del. Sup. Ct. 2005).

Similarly, the covenant of good faith and fair dealing may not be invoked where, as here, it is "merely a substitute for a nonviable breach of contract claim." National Union Fire Ins. Co. of Pittsburgh, Pa. v. Xerox Corp., 25 AD3d 309, 310 (1st Dept. 2006); Triton Partners LLC v. Prudential Securities Inc., 301 AD2d 411 (1st Dept. 2003); Sheth v. New York Life Ins. Co., 273 AD2d 72, 75 (1st Dept. 2000). See also, New York Univ. v. Continental Ins. Co., 87 NY2d 308, 320 (1995); and Murphy v. American Home Prods. Corp., 58 NY2d 293, 304 (1983).

Finally, it is true that this Court, in its August 7, 2007 order, reviewed the prior complaint and discerned a viable fraud in the inducement theory of recovery. However, "[s]ince the original complaint was superseded by the amended complaint, rendering the sufficiency of the allegations in the original complaint academic. . . the Law of the Case doctrine . . . [does] not bar the . . . Court from entertaining the Defendants' motion to

dismiss the amended complaint." Gay v. Farella, 5 AD3d 540, 541 (2nd Dept. 2004). See, Chalasani v. Neuman, 64 NY2d 879 (1985).

Accordingly, it is,

ORDERED that the motion of the Defendants, Cablevision Systems Corporation and CSC Holdings, Inc., for an order dismissing the amended complaint is granted. The amended complaint is hereby dismissed.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY_____________________________

September 8, 2008Hon. Leonard B. Austin, J.S.C.