Arthur Cab Leasing Corp. v Loup Hacking Corp.

[*1] Arthur Cab Leasing Corp. v Loup Hacking Corp. 2013 NY Slip Op 50663(U) Decided on April 25, 2013 Supreme Court, Kings County Schmidt, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 April 25, 2013
Supreme Court, Kings County

Arthur Cab Leasing Corp., Plaintiff,

against

Loup Hacking Corp., Defendant.



Arthur Cab Leasing Corp., Plaintiff,

against

Sice Mois Hacking Corp., Defendant.



500750/11



Plaintiff Attorney: David J. Gruber, Esq., Gruber, Schwartz & Posnock, LLP, 350 Fifth Avenue, Suite 4022, New York, NY 10118

Defendant Attorney: Daniel L. Ackman, Esq., 12 Desbrosses Street, New York, NY 10013

David Schmidt, J.

Upon the foregoing papers, Loup Hacking Corp. (Loup) and Sice Mois Hacking Corp. (Sice Mois) (collectively, defendants) move, pursuant to CPLR 3211 and 3212, for dismissal of or summary judgment on the claims against them for breach of taxi medallion management agreements. Arthur Cab Leasing Corp. (plaintiff) cross-moves, pursuant to CPLR 3212, for summary judgment granting its claims and dismissing defendants' counterclaims for breach of the same agreements.

Background

(1)

Plaintiff, a taxi managing agent licensed by the New York City Taxi and Limousine Commission (TLC), and Loup, a taxi medallion-owning corporation owned by Paul Widmarck (Widmarck), agreed to a leasing arrangement for taxi medallions 6H73 and 6H74 on or about May 1, 2010 (the Loup Agreement). Plaintiff and Sice Mois, another taxi medallion-owning corporation owned by Widmarck, agreed to a virtually identical leasing arrangement for medallions 4V20 and 4V21 on the same date (the Sice Mois Agreement).

Plaintiff agreed in both contracts to pay the respective defendant $2600 monthly, plus a $5000 signing bonus, per medallion for a term of May 1, 2010 through February 28, 2015. The agreements specifically stated, however, that "[s]hould Lessor fail to complete his obligations under this Lease then Lessor shall repay the signing bonus to Manager in its entirety."[FN1] Both agreements granted plaintiff a right to terminate for any reason with 60 days notice to the respective defendant, but provided that if Loup or Sice Mois should discontinue an agreement before the end of the specified term for any reason other than breach by the plaintiff that defendant would "make [plaintiff] whole for potential income that could have been earned by [plaintiff] for the remainder of the term of the Agreement." The agreements recognized the potential difficulty of determining such lost income, and consequently specified a system of liquidated damages: if a defendant terminated in the first two years, plaintiff would receive $10,000 per medallion for each year or partial year remaining on the contract; if a defendant terminated in the third or fourth year, that amount would increase to $11,000 per medallion; and, for an even later termination, it would rise to $14,000. Both agreements also specified that at the conclusion of the term, or upon earlier termination, plaintiff would return the medallions and associated rate cards and tax stamps to the respective defendant.

Loup notified plaintiff and the TLC on April 1, 2011 that it was terminating the Loup Agreement and demanded return of the Loup medallions. TLC records indicate that [*2]plaintiff stored the Loup medallions with the TLC on May 2, 2011 for return to Loup. Sice Mois similarly notified plaintiff and the TLC on May 11, 2011 that it was terminating the Sice Mois Agreement and demanded return of the Sice Mois medallions. TLC records indicate that Plaintiff did not return these medallions to the TLC until October 7, 2011.

(2)

Plaintiff commenced the action against Loup on September 9, 2011 and commenced the action against Sice Mois on December 23, 2011. Each complaint asserted that the respective defendant had breached its contract with plaintiff by terminating the agreement before February 28, 2015 and was thus obligated to return plaintiff's signing bonus and to pay liquidated damages, or, alternatively, consequential, lost-profit, special, reliance and incidental damages. Plaintiff additionally asserted that it had inadvertently paid Loup $5200 for the month of May 2011, after the Loup medallions had been revoked, and that Loup refused to return that amount.

Defendants asserted virtually identical affirmative defenses of failure to state causes of action, plaintiff's culpable conduct, that the agreements were terminable at will, disproportionate liquidated damages and failure to mitigate damages. Defendants also counterclaimed for breach of contract and asserted that plaintiff failed to pay defendants the full amount owed under the agreements and failed to promptly return the taxi medallions and associated rate cards and insurance certificates upon demand. Such failures, defendants contended, undermined their efforts to refinance the medallions and caused defendants to lose income.

Plaintiff asserted, in replies, affirmative defenses to defendants' counterclaims, namely, failure to state causes of action, each respective defendant's culpable conduct, failure to meet conditions precedent, waiver, estoppel, unclean hands, failure to provide notice, fraud in the inducement, failure to state claims for special or punitive damages, statute of limitations and covenant of good faith and fair dealing.

(3)

Defendants now jointly move for summary judgment or dismissal of plaintiff's claims in their respective actions. Defendants argue that TLC rules 1-75, 1-76 and 1-77, in effect at the times relevant herein, made all taxi medallion management agreements terminable at will and that defendants thus did not breach their agreements with plaintiff by terminating before February 28, 2015. Defendants stress that no action lies for breach of a contract terminable at will, and they therefore urge that they are not liable for any income plaintiff lost due to termination. Furthermore, defendants contend that, as plaintiff lost no income due to the terminations, the liquidated damages clauses are necessarily disproportionate to actual damages and therefore unenforceable.

Plaintiff cross-moves for summary judgment on both its claims and defendants' counterclaims. Plaintiff first argues that defendants' summary judgment motion must be denied because defendants did not provide requested discovery materials. It then argues [*3]that, though TLC rules may have permitted a medallion owner to revoke agency authority at any time, a general ability to revoke authority is distinguishable from free license to breach a fixed-duration contract and that New York courts have previously enforced the terms of fixed-duration taxi medallion management agreements. Plaintiff asserts that defendants voluntarily entered into the five-year agreements and that plaintiff would not have agreed to pay signing bonuses had it believed the agreements terminable at will. The terms of the agreements, contends plaintiff, did not infringe on defendants' abilities to revoke plaintiff's agency, but merely set conditions for revocation.

Plaintiff further alleges that its actual damages from early termination of the agreements exceed $600,000 and that the demanded liquidated damages of $180,000 are thus not disproportionate. It asserts that liquidated damages are appropriate as defendants, sophisticated business entities, were represented by attorneys when they executed the agreements and agreed that potential damages were difficult to determine at that time. Plaintiff argues that the liquidated damages clause eliminated any duty to mitigate actual damages and that mitigation would not, in any case, have been possible given the difficulty of replacing taxi medallions. Plaintiff also asserts that defendants have produced no evidence to support their counterclaims and that any delay in returning the medallions or other materials did not impair defendants' abilities to refinance their medallions because banks assess a medallion's market value without considering the terms of the medallion's actual management agreement.

Defendants assert, in opposition and reply, that TLC rule 1-76 made clear that a medallion owner could, by right, terminate a management agreement at any time and that rule 1-77 (d) prohibited contractual interference with this right. The right to terminate at will is crucial to medallion owners, according to defendants, because TLC rules leave owners strictly liable for any rule violations involving their medallions. Consequently, they allege, a management agreement with an early termination fee violates public policy by truncating an owner's right to terminate at will. Defendants further argue that plaintiff's actual damage estimates are inflated and that plaintiff could have mitigated its damages by either obtaining replacement medallions or selling its vehicles to recoup costs. Finally, defendants assert that they did not refuse to provide discovery, that they merely objected to the requested discovery's breadth and that plaintiff's counsel never pursued the matter.

Plaintiff replies that, if defendants truly considered the liquidated damages clause unenforceable at the time of execution, failure to reveal this position constituted fraud in the inducement. Plaintiff stresses that its contracts with defendants were not its standard management agreements and that the terms were negotiated by plaintiff's and defendants' attorneys. Public policy, asserts plaintiff, is not served by permitting medallion owners to terminate management agreements indiscriminately.

Plaintiff, in response to defendants' allegations that plaintiff's damage estimates are too high, submits modified estimates of lost income that account for additional costs, but [*4]which still estimate actual damages approximately 35% higher than its liquidated damages demand. Plaintiff argues, in any case, that it is not required to prove its damages in detail because liquidated damages are appropriate so long as they are not grossly disproportionate to actual damages. Plaintiff further asserts that defendants have submitted no evidence of any counterclaim damages and have failed to produce requested discovery.

Discussion

Summary Judgment

A summary judgment movant must show prima facie entitlement to judgment as a matter of law by producing sufficient admissible evidence demonstrating the absence of any material factual issues (CPLR 3212 [b]; Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]). Failing to make such a showing requires denying the motion regardless of the sufficiency of any opposition (Vega v Restani Cosntr. Corp., 18 NY3d 499, 502 [2012]). Making a prima facie showing justifying a grant of summary judgment shifts the burden to the opponent to introduce "evidentiary proof in admissible form sufficient to require a trial of material questions" (Zuckerman v City of New York, 49 NY2d 557, 562 [1980]).

Considering a summary judgment motion requires viewing the evidence in the light most favorable to the motion opponent (Vega, 18 NY3d at 503). Nevertheless, "mere conclusions, expressions of hope or unsubstantiated allegations are insufficient" to defeat a summary judgment motion (Zuckerman, 49 NY2d at 562). "The court's function on a motion for summary judgment is to determine whether material factual issues exist, not to resolve such issues" (Ruiz v Griffin, 71 AD3d 1112, 1115 [2010] [internal citation and quotation marks omitted]).

Early Termination Of The Management Agreements

Principles of freedom of contract demand that a court enforce clear and unambiguous contractual terms unless the result is illegal or contrary to public policy (see Welsbach Elec. Corp. v MasTec N. Am., Inc., 7 NY3d 624, 629 [2006]; Village Taxi Corp. v Beltre, 91 AD3d 92, 99-100 [2011]). An agency or employment agreement will be construed as terminable at will if the duration is indefinite or undefined, but the at-will doctrine is inapplicable to an agreement with a clearly defined duration (Rooney v Tyson, 91 NY2d 685, 689 [1998]; see also Sabetay v Sterling Drug, 69 NY2d 329, 333 [1987]; Rossetti v Aretakis, 78 AD3d 1148, 1149 [2010]). A principal may have an inherent power to revoke an agent's authority to act on the principal's behalf, but a distinct issue exists regarding whether revoking such authorization constitutes a breach of contract (Wilson Sullivan Co. v International Paper Makers Realty Corp., 307 NY 20, 24-25 [1954]; see also G.K. Alan Assoc., Inc. v Lazzari, 44 AD3d 95, 101-02 [2007] ["[a] principal is always free to terminate the agency relationship, subject to a claim for damages by the agent"], affd 10 NY3d 941 [2008]).

Here, nothing suggests that the Loup and Sice Mois Agreements were either [*5]intended or legally required to be terminable at will. Each agreement clearly states that it will be effective "for a term commencing on May 1, 2010 and ending February 28, 2015," an unambiguous fixed duration that prohibits application of the at-will doctrine.

Similarly, nothing in the TLC rules suggested a requirement that management agreements be terminable at will. Former TLC Taxicab Owners Rules § 1-76 (a) stated,[FN2] among other things:

"An owner may designate an agent to act on the owner's behalf to operate a licensed vehicle and perform all functions incident thereto. . . . Such designation shall be in effect until revoked by the owner and the [TLC] is notified, or until such agent's license is suspended or revoked by the [TLC]."

Nothing in this rule suggested that it prohibited an owner and agent from making a fixed-term management agreement. The language of former rule 1-77 (d) also does nothing to strengthen defendants' argument. Rule 1-77 placed certain limitations on a medallion owner's use of an agent, and subsection (d) stated, "No contract or other agreement entered into by an owner with an agent shall include a provision which purports to supersede or impair the effectiveness, in whole or in part, of the provisions of this rule" (former TLC Taxicab Owners Rules § 1-77). This clause, by its unambiguous language, applied only to rule 1-77. Nothing supports the idea that rule 1-77 (d) applied to other rules generally or to rule 1-76 specifically. Indeed, the definition of "long-term driver," in former rule 1-01, reveals that each section of the rules was treated as a separate rule by referring to "Rules 1-47 and 1-48" (see former TLC Taxicab Owners Rules § 1-01).

A court interpreting a statute must examine the statutory language and must "construe unambiguous language to give effect to its plain meaning" (Matter of Albany Law School v New York State Off. of Mental Retardation & Dev. Disabilities, 19 NY3d 106, 120 [2012]; Yatauro v Mangano, 17 NY3d 420, 426-27 [2011]). The unambiguous language of rule 1-76 primarily established that revocation of agency was not effective until the TLC was notified, which demonstrates that this clause did not grant medallion owners an irrevocable power to terminate management agreements, but rather precluded them from terminating their agents without notice to the TLC. An owner's contractual promise not to terminate an agent during an agreed-upon term thus presents no conflict with former rule 1-76's apparent intent or legal effect.

Defendants' public policy argument urges that owners are strictly liable for TLC rule violations involving their medallions and therefore must be free to terminate managing agents at will to ensure rule compliance. Dispelling this concern, however, merely requires an owner's ability to condition a management agreement's duration upon [*6]the agent's following TLC rules. This ability, of course, remains inherent to the freedom of contract, and defendants make no suggestion that medallion owners are hindered in demanding such a clause.

Past New York cases enforcing the terms of fixed-duration medallion management agreements bolster their legitimacy, even if these cases have not addressed the specific arguments herein (see Baron Leasing Corp. v Raphael, 103 AD3d 763, 763-64 [2013] [holding taxi medallion owner's estate administrator did not breach management agreement by recalling medallions before contract expired as TLC rules required storing medallions within 120 days of owner's death]; Perfect Crown Vic, Inc. v Douce Hacking Corp., 15 Misc 3d 1119[A], 2007 NY Slip Op 50765[U], at *3, *6 [Sup Ct, Kings County 2007] [awarding damages for medallion owner's premature termination of fixed-duration management agreement], affd 56 AD3d 448 [2008]; Taxifleet Mgt. LLC v Tin, 36 Misc 3d 1214[A], 2012 NY Slip Op 51323[U], at *2-3 [Civ Ct, Kings County 2012] [finding fixed-duration management agreement valid and not in contravention of "owner must drive" rule]). Furthermore, the only consideration given in a management agreement by the medallion owner may be the promise to allow the managing agent to utilize the medallion for a fixed term. Holding that promise unenforceable could thus render illusory any management agreements like those herein.

Consequently, plaintiff makes a prima facie showing that the management agreements were fixed duration contracts and that nothing requires considering them terminable at will. Defendants, in response, fail to raise a triable factual issue.

Damages

A liquidated damages clause, such as an early termination fee, merits enforcement only if the fixed damages amount is reasonably proportionate to the foreseeable actual loss (G3-Purves St., LLC v Thomson Purves, LLC, 101 AD3d 37, 41-42 [2012]; United Tit. Agency, LLC v Surfside-3 Mar., Inc., 65 AD3d 1134, 1135 [2009]; see also JMD Holding Corp. v Congress Fin. Corp., 4 NY3d 373, 379-80 [2005]). The party challenging a liquidated damages clause must show that the amount of potential actual damages was readily ascertainable at the time the contract was executed or that the fixed damages amount is grossly disproportionate to foreseeable losses (Bates Adv. USA, Inc. v 498 Seventh, LLC, 7 NY3d 115, 120 [2006], rearg denied 7 NY3d 784 [2006]; United Tit. Agency, 65 AD3d at 1135).

The management agreements in this case clearly indicate that the parties deemed plaintiff's potential losses difficult to ascertain, and plaintiff has produced detailed estimates of actual damages exceeding the fixed damages amount it seeks to recover. Defendants, in response, assert that the fixed damages plaintiff seeks are disproportionate, but produce no evidence supporting that assertion, and make conclusory statements that courts disfavor liquidated damages clauses. Furthermore, the management agreements' language specifies that defendants are bound to repay the respective signing bonuses to plaintiff if early termination occurs, and defendants effectively admitted this obligation at [*7]oral argument. Hence, plaintiff makes a prima facie showing warranting judgment in its favor for liquidated damages and repayment of the signing bonuses, and defendants fail to raise a triable factual issue in this regard.

Plaintiff, in addressing the $5200 that it claims to have inadvertently paid Loup after revocation of its medallions, merely states that it paid that amount, and Loup merely states that plaintiff did not. No other evidence has been introduced on this claim, and thus a factual question remains.

Defendants' Counterclaims

Plaintiff does little to advance its summary judgment motion concerning defendants' counterclaims. It makes only cursory arguments that defendants have failed to provide discovery materials or evidence of their damages and that plaintiff's delay in returning the medallions would not have affected their refinancing. Plaintiff, of course, bears the burden of making a prima facie showing that defendants' counterclaims lack merit, and, here, plaintiff fails to satisfy that burden. Thus, no need exists to consider the sufficiency of defendants' evidence opposing plaintiff's arguments (see Devlin v Ikram, 103 AD3d 682, 2013 NY Slip Op 00890, *1 [2013]; Proulx v Entergy Nuclear Indian Point 2, LLC, 98 AD3d 492, 493 [2012]). Accordingly, it is

ORDERED that Loup and Sice Mois's joint dismissal and summary judgment motion is denied in its entirety; and it is further

ORDERED that plaintiff Arthur Cab Leasing Corp.'s summary judgment cross motion is granted only as to (1) liability for early termination of the Loup Agreement and Sice Mois Agreement and (2) liquidated damages and repayment of the signing bonuses, but denied as to (1) return of plaintiff's purported $5200 payment to Loup in May, 2011 and (2) defendants' counterclaims.

E N T E R,

J. S. C. Footnotes

Footnote 1: The Loup and Sice Mois Agreements are essentially structured as leases, but this sort of agreement is typically referenced and treated under TLC rules as a "management agreement."

Footnote 2: The TLC rules were reorganized subsequent to the events underlying this case. Taxicab Owners Rules §§ 1-76 and 1-77 have been essentially replaced by TLC Rules § 58-18.