McFadyen Consulting Group Inc. v Puritans Pride, Inc.
Annotate this CaseDecided on April 6, 2010
Supreme Court, Suffolk County
McFadyen Consulting Group Inc., Plaintiff,
against
Puritans Pride, Inc., Defendant.
13303-09
TWOMEY, LATHAM, SHEA, KELLEY, DUBIN & QUARTARARO, LLP
Attorneys for Plaintiff
33 West Second Street
Riverhead, New York 11901
JASPAN SCHLESINGER LLP
Attorneys for Defendant
300 Garden City Plaza
Garden City, New York 11530
Elizabeth H. Emerson, J.
Upon the following papers numbered 1 105 read on this motion for summary judgment ; Notice of Motion and supporting papers 1-18 ; Notice of Cross Motion and supporting papers; Answering Affidavits and supporting papers 19-27 ; Replying Affidavits and supporting papers28 ; Other 29-63; 64-105 ; it is,
ORDERED that this motion by the plaintiff for summary judgment is granted; and it is further [*2]
ORDERED that the plaintiff is awarded damages in the amount of $780,302.96 with interest at the contractual rate from January 29, 2009, until the date of this order and at the statutory rate thereafter; and it is further
ORDERED that the plaintiff's application for attorney's fees is referred to a hearing, which shall be held on May 13, 2010 at 10:30 a.m., Supreme Court, Courtroom 7, Arthur M. Cromarty Criminal Court Building, 210 Center Drive, Riverhead, New York 11901
The plaintiff, McFadyen Consulting Group, Inc. ("McFadyen"), is a consulting firm that provides services to businesses with electronic commerce, or eCommerce, systems. The defendant, Puritan's Pride, Inc. ("Puritan"), is in the business of manufacturing, distributing, and selling vitamins and other nutritional supplements through telephone, catalog, and internet
sales. Puritan sought to rebuild its eCommerce websites for the Puritan's Pride and LeNaturiste brands. On June 30, 2008, McFadyen entered into a Master Services Agreement with Puritan to provide computer programming and coding services for the project. The services that McFadyen agreed to provide were detailed in a separately executed Statement of Work, which was incorporated by reference into the Master Services Agreement (collectively "the agreement"). The Statement of Work provided time, resource, and financial estimates for the re-deployment of the Puritan's Pride and LeNaturiste websites. It also provided that McFadyen would be compensated on an hourly time-and-materials basis.
Pursuant to paragraph 4 of the Master Services Agreement, Puritan agreed to pay the fees specified in the Statement of Work, plus normal travel and living expenses incurred in connection with work performed under the agreement. McFadyen agreed to provide Puritan with invoices on a semi-monthly basis for all labor and expenses incurred through each billing date. Invoices were required to be sent both electronically and by mail, and they were required to be paid within 30 days after Puritan received them. Moreover, Puritan was required to notify McFadyen in writing of any disputed invoices within 15 business days of their submission.
Pursuant to paragraph 13 of the Master Services Agreement, either party could terminate the agreement by providing 30 days' written notice to the other party. Termination of the agreement did not negate Puritan's obligation to pay for services rendered or scheduled prior to the effective date of the termination. Pursuant to paragraph 11, McFadyen's sole liability for its failure to deliver services was that the task be terminated and any money yet to be earned forfeited. Pursuant to paragraph 9, except for breaches of confidentiality, neither party is liable to the other for any incidental, indirect, special, or consequential damages of any kind arising out of the Master Services Agreement or the relationship between McFadyen and Puritan, including loss of profit.
Pursuant to paragraph 14 of the Master Services Agreement, the failure to enforce any provision is not to be construed as a waiver thereof, and any modifications to the agreement are required to be in writing and signed by both Puritan and McFadyen. Finally, paragraph 14 provides that the Master Services Agreement, including its exhibits and addendums, constitutes [*3]the complete and exclusive statement of the agreement between McFadyen and Puritan and supercedes all proposals, oral or written, and all other communications between them relating to the subject matter thereof.
Puritan paid McFadyen a $10,000.00 security deposit, and McFadyen commenced work at the beginning of August 2008. McFadyen sent invoices to Puritan in accordance with the terms of their agreement in August, September, and mid-October 2008. Puritan paid such invoices without objection. Beginning with the invoices dated October 31, 2008, Puritan stopped making payments to McFadyen. Puritan failed to pay the October 31, 2008, invoices and the subsequent invoices dated November 18, November 30, and December 8, 2008. It also failed to notify McFadyn in writing that those invoices were being disputed. On December 9, 2008, Puritan verbally instructed McFadyen to suspend work on the project. McFadyen immediately complied. By a letter dated December 22, 2008, Puritan advised McFadyen that it was electing to terminate their agreement pursuant to paragraph 13, effective immediately. Although McFadyen did not perform any additional work on the project, it sought payment for the work that it had already performed and for which it had not been paid, a total of $790,302.96. McFadyen made written demands for payment on January 9 and 29, 2009, respectively, to which Puritan did not respond. On February 19, 2009, McFadyen commenced an action against Puritan in the United States District Court for the Eastern District of New York. That action was voluntarily discontinued.
On April 6, 2009, McFadyen commenced this action to recover the $790,302.96 that Puritan allegedly owes it plus its attorney's fees. The complaint contains three causes of action for breach of contract, attorney's fees, and an account stated. Puritan answered and counterclaimed alleging, inter alia, that McFadyen misrepresented that it had the expertise and resources to provide computer programming services for the project, that McFadyen failed to appropriately staff the project to ensure the timely performance of its contractual obligations, and that McFadyen failed to perform. Puritan asserts six counterclaims against McFadyen for breach of contract, negligence, breach of the implied warranty of good faith and fair dealing, negligent misrepresentation, fraudulent misrepresentation, and rescission. McFadyen moves for summary judgment on its three causes of action and for dismissal of Puritan's counterclaims.
McFadyen has established, prima facie, its entitlement to judgment as a matter of law on its breach-of-contract cause of action by tendering admissible evidence that it provided services to Puritan for which Puritan did not pay (see, Castle Oil Corp. v Bokhari, 52 AD3d 762; George S. May Intl. Co. v Thirsty Moose, Inc., 19 AD3d 721, 722). McFadyen has also established, prima facie, its entitlement to judgment as a matter of law on its cause of action for an account stated by demonstrating that Puritan failed to object to the invoices that McFadyen sent to Puritan in accordance with their agreement (see, Castle Oil Corp. v Bokhari, supra at 762; George S. May Intl. Co. v Thirsty Moose, Inc., supra at 722).
Puritan has failed to raise a triable issue of fact in opposition to McFadyen's prima facie case. When, as here, the parties have set down their agreement in a clear and complete [*4]document, their writing should be enforced according to its terms (Vermont Teddy Bear Co. v 538 Madison Realty Co., 1 NY3d 470, 475; W.W.W. Assoc. v Giancontieri, 77 NY2d 157, 162). The court may not rewrite the parties' agreement (Appel Corp. v Crocker Commercial Servs., 146 AD2d 472; rearg granted 155 AD2d 331; order vacated on other grounds 169 AD2d 485). Pursuant to paragraph 4 of the Master Services Agreement, the parties provided that Puritan was required to notify McFadyen in writing of any disputed invoices within 15 days of their submission. Pursuant to paragraph 14, any waiver or modification thereof was required to be in writing. While Puritan claims that it made repeated oral objections to the invoices in question, specific written objections are lacking, and no written waivers have been produced (see, Appel Corp. v Crocker Commercial Servs., 146 AD2d at 472; see also, Congress Talcott Corp. v Damino Accessories, 166 AD2d 152, 153). Unlike James Talcott, Inc. v United States Tel. Co. (52 AD2d 197), upon which Puritan relies, McFadyen did not waive its right to insist upon timely written objections by accepting and acting upon Puritan's oral objections. To the contrary, the record reveals that McFadyen insisted upon payment in full. The court finds that the e-mails upon which Puritan relies do not raise a triable issue of fact. They generally predate the invoices that are the subject of this action and, in any event, fail to qualify as specific written objections to such invoices. Finally, even if the invoices were not sufficiently itemized, as Puritan contends, that fact does not in itself prevent the creation of an account stated (see, Zanani v Schvimmer, 50 AD3d 445, 446). Accordingly, the court finds that McFadyen is entitled to summary judgment on its third cause of action for an account stated.
In view of Puritan's failure to object to the services rendered in accordance with the terms of the parties' agreement, the court finds that Puritan has failed to raise a triable issue of fact in opposition to McFadyen's prima facie breach-of-contract claim. Moreover, pursuant to paragraph 13 of the Master Services Agreement, termination of the agreement did not negate Puritan's obligation to pay for services rendered or scheduled prior to the effective date of the termination. Accordingly, McFadyen is entitled to summary judgment on its first cause of action for breach of contract.
Counsel fees and legal expenses necessarily incurred in carrying on a lawsuit are not generally recoverable except when authorized by statute, court rule, or the parties' agreement (Chase Manhattan Bank v Each Individual Underwriter Bound to Lloyd's Policy No. 790/004A89005, 258 AD2d 1, 4; Coopers and Lybrand v Levitt, 52 AD2d 493, 496). The Master Services Agreement provides, in pertinent part, that McFadyen is entitled to reasonable attorney's fees in the event that it is required to use legal proceedings to collect moneys due thereunder. Accordingly, McFadyen is entitled to summary judgment on its second cause of action for attorney's fees.
Puritan's first counterclaim for breach of contract seeks to recover damages for lost sales and profits allegedly caused by McFadyen's failure to perform its contractual duties. This counterclaim is barred by paragraph 9 of the Master Services Agreement, which provides that, except for breaches of confidentiality, neither party is liable to the other for any incidental, indirect, special, or consequential damages, including loss of profit. It is also barred by [*5]paragraph 11, which provides that McFadyen's sole liability for its failure to deliver services is termination of the task and forfeiture of any money yet to be earned. A contractual provision that limits damages is enforceable unless a special relationship between the parties, a statute, or a public policy imposes liability (Peluso v Tauscher Cronacher Professional Engrs., 270 AD2d 325). There is no special relationship between McFadyen and Puritan, no pertinent statutory provision, and no overriding public interest which demands that these contractual provisions, voluntarily entered into by competent parties, be rendered ineffectual (Id. at 325). Moreover, it is well settled in New York that a defendant may not defeat an account stated by asserting in a counterclaim that the plaintiff breached the underlying contract (In re Rockefeller Center Properties, 272 BR 524, 543, citing Marino v Watkins, 112 AD2d 511, 512). Accordingly, the first counterclaim is dismissed.
Puritan's second counterclaim alleges that McFadyen negligently performed its contractual obligations. As a general rule, to recover damages for tort in a contract matter, it is necessary to plead and prove the breach of a duty distinct from, or in addition to, a breach of contract (see, Non-Linear Trading Co. v Braddis Assocs., 243 AD2d 107, 118). Puritan has failed to allege or demonstrate that McFadyen owed it a legal duty independent of the contractual duty and that McFadyen breached such independent duty (see, Clemens Realty v New York City Dept. of Educ., 47 AD3d 666, 667). The court finds that this is not a case in which the law imposes a legal duty upon McFadyen independent of its contractual obligations as an incident to the parties' relationship (cf., Sommer v Federal Signal Corp., 79 NY2d 540). Contrary to Puritan's contentions, McFadyen is not a professional (i..e, doctor, lawyer, architect, etc.), nor does it perform a service affected with a significant public interest that can have catastrophic consequences if not performed carefully and competently (Id. at 552-553). Moreover, McFadyen's alleged failure to perform its contractual obligations does not rise to the level of gross negligence (Id. at 554). Accordingly, the second counterclaim is dismissed.
Puritan's third counterclaim for breach of the implied warranty of good faith and fair dealing is duplicative of its first counterclaim for breach of contract. Implicit in all contracts is a covenant of good faith and fair dealing in the course of contract performance (see, Dalton v Educational Testing Service, 87 NY2d 384, 389). It does not create independent obligations beyond those set forth in the contract, and it is the terms of the contract that govern the rights and obligations of the parties (In re Alphastar Ins. Group Ltd., 383 BR 231, 277-278). Accordingly, the third counterclaim is dismissed.
Puritan's fourth counterclaims is for negligent misrepresentation. A claim for negligent misrepresentation can only stand in the presence of a special relationship of trust or confidence, distinct from or independent of the parties' contract, which creates a duty for one party to impart correct information to the other (Atkins Nutritionals v Earnst & Young, 301 AD2d 547, 548; WIT Holding Corp. v Klein, 282 AD2d 527; Carrea v Ditrapani, 2007 NY Slip Op 32898[U], 2007 WL 2814514). As previously noted, there was no special relationship between McFadyen and Puritan independent of their contract. The record reveals that their relationship was nothing more than an arms-length business relationship. Accordingly, the fourth counterclaim is [*6]dismissed.
Puritan's fifth counterclaim is for fraudulent misrepresentation. A cause of action sounding in fraud may not be based on statements that were promissory in nature at the time they were made and that related to future actions or conduct (see, Rand v Laico, 282 AD2d 444, Brown v Lockwood, 76 AD2d 721, 731). Mere unfulfilled promissory statements as to what will be done in the future are not actionable as fraud (see, Brown v Lockwood, supra at 731). An exception to this rule occurs when the defendant makes a promise of future action for the purpose of inducing the plaintiff to enter into a contract, and the defendant does not fulfill that promise. A party who relies thereon to his detriment may recover for fraud if he can prove that, at the time the promise was made, the defendant had no intention of carrying it out (Id. at 731-732). However, proof of failure to keep a promise, without more, is not conclusive. If the only proof is that the defendant failed to keep his promise, it is insufficient to establish that he did not intend to perform when the promise was made. Fraudulent intent not to perform a promise cannot be inferred merely from the fact of non-performance. Additional proof is required (Id. at 732-733). The court finds that no such additional proof appears in this record. Puritan's contentions to the contrary notwithstanding, McFadyen's failure to adequately staff the project does not prove that McFadyen did not intend to do so when it entered into the Master Services Agreement and Statement of Work. In fact, Puritan acknowledges that, after execution of the Master Services Agreement and Statement of Work, McFadyen's management spent the majority of August 2008 scrambling to staff the project. Moreover, contrary to Puritan's contentions, McFadyen's sell-it-first-and-staff-it-second mindset is actually inconsistent with a fraudulent intent not to perform the contract. Accordingly, the fifth counterclaim is dismissed.
Puritan's sixth counterclaim for rescission of the parties' agreement also fails. The equitable remedy of rescission may be invoked only when there is lacking a complete and adequate remedy at law and when the status quo may be substantially restored (Marshall v Houle, 304 AD2d 1026, 1027; Sokolow, Dunaud, Mercadier & Carreras v Lacher, 299 AD2d 64, 71). The sixth counterclaim seeks money damages, and it would be impracticable to restore the status quo. Accordingly, the sixth counterclaim is dismissed.
Turning to the issue of damages, the court finds that McFadyen is entitled to recover from Puritan $780,302.96 ($790,302.96 minus Puritan's $10,000.00 security deposit) with interest at the contractual rate from January 29, 2009, until the date of this order and at the statutory rate thereafter, and the matter is set down for a hearing on the issue of attorney's fees.
Dated:April 6, 2010
J.S.C.
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