Have A Breach Of Contract Claim? Don’t Forget To Identify The Provision Alleged To Be Breached

• Posted on: Oct 9 2017

Contracts are often at the heart of business and commercial disputes. Not all contract disputes result in litigation. A well-drafted contract can often prevent or resolve a dispute before the parties run to court. But, when the parties cannot resolve their differences, and resort to litigation, it is important to understand the rules governing the breach of contract claim.

As a general matter, to allege a breach of contract, a plaintiff must plead (and prove) the following: (1) the existence of an enforceable agreement; (2) performance by plaintiff; (3) the defendant breached the agreement; and, (4) the plaintiff sustained damages as a direct result of the defendant’s breach. JP Morgan Chase v. J.H. Elec. of N.Y., Inc., 69 A.D.3d 802, 803 (2d Dept. 2010). The failure to satisfy each of the foregoing elements is fatal to a breach of contract claim.

Perhaps the most difficult element to satisfy is the first one – the existence of an enforceable agreement. Putting aside the issue of enforceability (e.g., some agreements are unenforceable under the Statute of Fraud (discussed here, here and here), while other agreements are void as against public policy), a plaintiff must identify the specific terms of the agreement upon which the claim is based. M&T Bank Corp. v. Gemstone CDO VII, Ltd., 68 A.D.3d 1747, 1750-51 (4th Dept. 2009). After all, if the plaintiff cannot identify the terms of the agreement alleged to have been breached, s/he cannot prove that the defendant breached the agreement.

Recently, Anna Barrett (“Barrett”) ran into this problem in a lawsuit that she brought against TD Ameritrade Holding Corporation (“TD Ameritrade”), among others.

Barrett v. Grenda, 2017 NY Slip Op. 07031 (4th Dept. Oct. 6, 2017)

Barrett commenced her action against the defendants for conduct relating to her investment in a private fund established by Walter Grenda, Timothy Dembski, and Reliance Financial Advisors, LLC (collectively, the “Reliance Defendants”) and TD Ameritrade. Barrett sought damages as a result of the defendants’ fraud, negligence, breach of contract, breach of fiduciary duty, and violation of General Business Law § 349.

Barrett’s claims arose from investments made in April 2011 in the Prestige Wealth Management Fund (the “Prestige Fund”), a fund that was established by the Reliance Defendants in November 2010. Barrett made her investment in the Prestige Fund through TD Ameritrade, and claimed, among other things, that TD Ameritrade breached its agreement (an IRA Application and Client Agreement) with her by failing to supervise the Reliance Financial Defendants.

TD Ameritrade moved to dismiss. Regarding the contract claim, TD Ameritrade argued that Barrett failed to plead the formation of a contract from which a breach could arise – that is, she failed to identify any of the terms of the agreement claimed to have been breached: “Plaintiff has failed to state a claim for breach of contract, because Plaintiff has failed to identify any provision in any contract between her and TD Ameritrade by which it agreed ‘to provide prudent professional financial advice,’ or to ‘supervise’ her account or her investment advisors.”

Concluding that the motion was “premature” in the absence of discovery, the motion court denied it without reviewing TD Ameritrade’s substantive contentions.

The Fourth Department reversed, concluding that the motion court erred in denying the motion.

In doing so, the Court agreed with TD Ameritrade, finding that Barrett “failed to identify the particular contractual provision that was breached.” The Court went further, noting that “the documentary evidence submitted by the TD Ameritrade defendants, i.e., the IRA Application and Client Agreement, conclusively refutes plaintiff’s allegation that the TD Ameritrade defendants owed any such contractual obligations to her.”

A copy of the decision can be found here.

Takeaway

To form a contract, there must be: (1) at least two parties with legal capacity to enter the contract; (2) mutual assent to the terms of an agreement; and (3) consideration. Furia v. Furia, 116 A.D.2d 694, 695 (2d Dept. 1986).

In claiming a breach of contract (i.e., enforcing or attempting to enforce a contract), the first step for the plaintiff is to plead the existence of a valid contract. In that regard, the plaintiff must identify the specific terms of the contract that the defendant is alleged to have breached. General allegations that the contract has been breached will not suffice. Kraus v. Visa Int’l Service Assoc., 304 A.D.2d 408 (1st Dept. 2003). Barrett learned this lesson the hard way.